Management Audit of the Hawaii Tourism Authorityfiles.hawaii.gov/auditor/Reports/2002/02-04.pdf · execute contracts and agreements. All of the authority’s revenues come through

Management Audit of the HawaiiTourism Authority

A Report to theGovernorand theLegislature ofthe State ofHawaii

THE AUDITORSTATE OF HAWAII

Report No. 02-04February 2002

Office of the Auditor

The missions of the Office of the Auditor are assigned by the Hawaii State Constitution(Article VII, Section 10). The primary mission is to conduct post audits of the transactions,accounts, programs, and performance of public agencies. A supplemental mission is toconduct such other investigations and prepare such additional reports as may be directed bythe Legislature.

Under its assigned missions, the office conducts the following types of examinations:

1. Financial audits attest to the fairness of the financial statements of agencies. Theyexamine the adequacy of the financial records and accounting and internal controls, andthey determine the legality and propriety of expenditures.

2. Management audits, which are also referred to as performance audits, examine theeffectiveness of programs or the efficiency of agencies or both. These audits are alsocalled program audits, when they focus on whether programs are attaining the objectivesand results expected of them, and operations audits, when they examine how wellagencies are organized and managed and how efficiently they acquire and utilizeresources.

3. Sunset evaluations evaluate new professional and occupational licensing programs todetermine whether the programs should be terminated, continued, or modified. Theseevaluations are conducted in accordance with criteria established by statute.

4. Sunrise analyses are similar to sunset evaluations, but they apply to proposed rather thanexisting regulatory programs. Before a new professional and occupational licensingprogram can be enacted, the statutes require that the measure be analyzed by the Officeof the Auditor as to its probable effects.

5. Health insurance analyses examine bills that propose to mandate certain healthinsurance benefits. Such bills cannot be enacted unless they are referred to the Office ofthe Auditor for an assessment of the social and financial impact of the proposedmeasure.

6. Analyses of proposed special funds and existing trust and revolving funds determine ifproposals to establish these funds are existing funds meet legislative criteria.

7. Procurement compliance audits and other procurement-related monitoring assist theLegislature in overseeing government procurement practices.

8. Fiscal accountability reports analyze expenditures by the state Department of Educationin various areas.

9. Special studies respond to requests from both houses of the Legislature. The studiesusually address specific problems for which the Legislature is seeking solutions.

Hawaii’s laws provide the Auditor with broad powers to examine all books, records, files,papers, and documents and all financial affairs of every agency. The Auditor also has theauthority to summon persons to produce records and to question persons under oath.However, the Office of the Auditor exercises no control function, and its authority is limited toreviewing, evaluating, and reporting on its findings and recommendations to the Legislature andthe Governor.

THE AUDITORSTATE OF HAWAIIKekuanao‘a Building465 S. King Street, Room 500Honolulu, Hawaii 96813

The Auditor State of Hawaii

OVERVIEWManagement Audit of the Hawaii Tourism AuthorityReport No. 02-04, February 2002

Summary

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In 1997, the Economic Revitalization Task Force was convened to look for waysto improve Hawaii’s economy. To implement the task force’s recommendations,the Legislature in 1998 established the Hawaii Tourism Authority. A 13-memberBoard of Directors heads the authority. Among other things, the law authorizesthe board to create a vision and develop a long-range plan for tourism in Hawaii,develop and implement the state tourism strategic marketing plan, and make andexecute contracts and agreements. All of the authority’s revenues come throughthe Tourism Special Fund, which collects 37.9 percent of the State’s transientaccommodations tax revenues. During FY2000-01, the fund had $67.7 million inrevenues.

We found that the Hawaii Tourism Authority is plagued by an alarming array ofmanagement deficiencies. The authority’s Board of Directors has the principalresponsibility for fulfilling the authority’s mission of managing the strategicgrowth of Hawaii’s visitor industry. We found that the board has failed to providethe vision, leadership, and direction necessary to ensure that the authority achievesits primary mission. The authority’s strategic planning process was deficient, andmeasuring the direct impact of the authority’s efforts is difficult. We found suspectthe history and justification behind the authority’s decision to contract withFishman Enterprises, Inc. for up to $546,000 in compensation (plus certainexpenses) to serve as chief executive officer overseeing the staff and operationsof the authority for a three-year period. Also, the contract contains a number ofunfavorable provisions. For example, the contract allows the State to terminate thecontractual relationship with Fishman Enterprises for a number of causal reasons,but not for “poor performance.”

We also found unclear and deficient management and operational leadership. Forexample, the authority has yet to establish some of the basic organizationalfundamentals and controls; this has led to internal conflict over the role boardmembers should play in the authority’s operations. Moreover, we found that theboard should have been more careful about ethics laws and public meeting laws.

In addition, we found that the Hawaii Revised Statutes do not accurately reflect theauthority’s duties and responsibilities.

Furthermore, we found that inadequate management of the authority has notensured the appropriate use of $144.5 million in state resources. The authority isunable to adequately account for its significant financial and human resources. Forexample, since its inception, the authority has awarded about 390 contracts andagreements totaling over $137 million. Yet Fishman Enterprises’ failure to ensurethe implementation of adequate internal controls over contracting has resulted in

Report No. 02-04 February 2002

Marion M. Higa Office of the AuditorState Auditor 465 South King Street, Room 500State of Hawaii Honolulu, Hawaii 96813

(808) 587-0800FAX (808) 587-0830

serious deficiencies in the contracting process and opens the authority to waste andfraud. Without this contracting framework, which should include written policiesand procedures, the authority is also missing key documents supporting thecontracting process and is inadequately monitoring contracts.

The authority also entered into two contracts totaling over $135 million with theHawaii Visitors and Convention Bureau that contain provisions disadvantageousto the State. Multimillion dollar payments are made to the bureau with littlejustification. Compounding these problems are deficiencies in the authority’spersonnel and organizational framework. We found outdated and inaccurateposition descriptions, unclear lines of authority, and staff frustration.

Finally, we found that the authority has taken initial steps to adequately managethe Hawai‘i Convention Center; however a number of issues are still unresolved.Also, oversight responsibilities for the convention center are not legislativelyassigned.

We made a number of recommendations to the Board of Directors of the HawaiiTourism Authority to correct the problems we identified. We also recommendedthat the Legislature clarify in statutes the authority’s duties and responsibilities.

In written comments on a draft of our report, the authority’s board chair acceptedand agreed with our recommendations. He noted that the audit provides a goodtemplate for improvement. The authority’s current executive director stated thatthe authority looks forward to implementing our recommendations withoutreservations, except for the recommendation to tie contractors’ remuneration tomeasurable deliverables. The executive director also affirmed the authority’s“responsibility to the public to be a fiscally responsible organization.” Thedirector of the Department of Business, Economic Development and Tourism(DBEDT) commented that he believes our report will help the new chief executiveofficer to better manage the authority. The DBEDT director also discussed issuesrelating to the measurement of the authority’s success. All of the above partiescommenting on the draft provided additional information and viewpoints.

Recommendationsand Response

Management Audit of the HawaiiTourism Authority

Report No. 02-04February 2002

A Report to theGovernorand theLegislature ofthe State ofHawaii

THE AUDITORSTATE OF HAWAII

Submitted by

Foreword

This management audit of the Hawaii Tourism Authority was conductedpursuant to Senate Concurrent Resolution No. 31, Senate Draft 1 of the2001 Regular Session. The resolution asked the Auditor to review theresponsibilities, functions, and relationship of the authority’s board andstaff; contracting procedures and expenditures; personnel procedures,including evaluations; any appropriate financial issues; and the tourismlaws.

We wish to acknowledge the cooperation and assistance of the HawaiiTourism Authority; the Department of Business, Economic Developmentand Tourism; the Department of the Attorney General; and others whomwe contacted during the audit.

Marion M. HigaState Auditor

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Table of Contents

Chapter 1 Introduction

Background on the Hawaii Tourism Authority .............. 1Objectives of the Audit .................................................. 6Scope and Methodology ................................................. 7

Chapter 2 The Hawaii Tourism Authority Is Plagued byan Alarming Array of ManagementDeficiencies

Summary of Findings ................................................... 10The Board Has Failed to Provide the Hawaii Tourism

Authority with Adequate Vision, Leadership, orDirection.................................................................... 10

Inadequate Management Has Not Ensured theAppropriate Use of $144.5 Million in StateResources .................................................................. 21

Despite Efforts to Manage the Hawai‘i ConventionCenter, Unresolved Issues Still Exist ........................ 33

Conclusion .................................................................... 35Recommendations ........................................................ 36

Responses of the Affected Agencies ................................... 53

List of Exhibits

Exhibit 1.1 Hawaii Tourism Authority, Board of Directors ............. 3Exhibit 1.2 Tourism Special Fund, Revenues and Expenditures,

FY1998-99 through FY2000-01.................................. 5Exhibit 2.1 Indications of Possible Ethics Issues ............................ 19Exhibit 2.2 Hawaii Tourism Authority, Agreement and Contract

Totals, FY1998-99 to FY2001-02 (as ofOctober 2001) ........................................................... 22

Exhibit 2.3 Tourism Special Fund Expenditures (FY2000-01) ...... 23Exhibit 2.4 Hawaii Visitors and Convention Bureau, Sample

Invoice to the Hawaii Tourism Authority ................. 27Exhibit 2.5 Hawaii Tourism Authority, Official Position

Organization Chart .................................................... 30Exhibit 2.6 Hawaii Tourism Authority, Informal Position

Organization Chart .................................................... 31

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List of Appendixes

Appendix A Hawaii Tourism Authority, Agreements: FY1998-99to FY2001-02 (as of October 2001) .......................... 39

Appendix B Hawaii Tourism Authority, Business DestinationMarketing Contracts: FY2001-02 (as ofJuly 2001) .................................................................. 41

Appendix C Hawaii Tourism Authority, Events Contracts:FY1998-99 to FY2001-02 (as of October 2001)....... 43

Appendix D Hawaii Tourism Authority, Product DevelopmentContracts: FY1998-99 to FY2001-02 (as ofOctober 2001) ........................................................... 45

Appendix E Hawaii Tourism Authority, Other Contracts:FY1998-99 to FY2001-02 (as of October 2001)....... 51

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Chapter 1: Introduction

Chapter 1Introduction

During its 2001 Regular Session, the Legislature noted that the HawaiiTourism Authority appeared unable to adequately explain its actions in anumber of areas. The Legislature was particularly concerned that theexpenditure of a significant amount of money in support of the tourismindustry, which is so critical to the economic well-being of the state, bemore carefully monitored. Due to the complexity of the issues raisedduring the 2001 Regular Session, the Legislature requested amanagement audit by the State Auditor. Senate Concurrent ResolutionNo. 31, Senate Draft 1 asked the Auditor to review the following:

• The responsibilities and functions of the Hawaii TourismAuthority board and staff, and the relationship between activitiesof the board and staff;

• Contracting procedures, including current contract expenditures;

• Personnel procedures, including evaluations;

• Any appropriate financial audit issues; and

• The current laws relating to tourism.

In 1997, a group of business, labor, and community leaders, collectivelyknown as the Economic Revitalization Task Force, was convened to lookfor ways to improve Hawaii’s economy. One of the task force’sobjectives was to provide recommendations to strengthen the marketingand promotion of tourism. The task force presented an integratedeconomic reform package to the Nineteenth Legislature prior to thebeginning of the 1998 legislative session. The task force recommendedthat funds for tourism come from a dedicated source and proposedraising the transient accommodations tax and earmarking a portion of thetotal revenue from the tax to create a special fund for tourism. The taskforce also recommended the establishment of an executive board tooversee the fund.

To implement the task force’s recommendations, the Legislature,through Act 156, Session Laws of Hawaii (SLH) 1998, established theHawaii Tourism Authority. The law made the authority a “bodycorporate and a public instrumentality of the State” and placed it withinthe Department of Business, Economic Development and Tourism for

Background onthe HawaiiTourism Authority

The authority’s missionis to manage thestrategic growth ofHawaii’s visitorindustry

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administrative purposes. In doing so, the Legislature noted the State’sdependence on tourism and the importance of developing, marketing,and conducting research of the tourism industry in a coordinated mannerconsistent with the State’s needs. Act 156 is codified as Chapter 201B,Hawaii Revised Statutes (HRS). The mission established by theauthority is:

To manage the strategic growth of Hawaii’s visitor industry in a mannerconsistent with the economic goals, cultural values, preservation ofnatural resources, and community interests of the people of Hawaii.

A board of directors heads the authority

A 13-member Board of Directors (board) heads the authority. The boardconsists of ten public voting members, one public nonvoting member,one ex officio voting member, and one ex officio nonvoting member.Pursuant to statute, at least six of the ten public voting members musthave knowledge, experience, and expertise in visitor industrymanagement, marketing, and promotion. In addition, the City andCounty of Honolulu, and the counties of Hawaii, Kauai, and Maui, musteach have at least one representative among the ten public votingmembers. The governor appoints the public nonvoting member, and thedirectors of the Department of Business, Economic Development andTourism and the Department of Transportation serve as the ex officiovoting member and ex officio nonvoting member, respectively. Allpublic members are appointed by the governor for four-year terms. Thegovernor announced his appointments to the initial board on October 9,1998. Exhibit 1.1 shows the current board members.

Among other things, the law authorizes the board to:

• Create a vision and develop a long-range plan for tourism inHawaii;

• Develop and implement the state tourism strategic marketingplan to promote and market the state as a desirable visitordestination;

• Develop, coordinate, and implement state policies and directionsfor tourism;

• Coordinate all agencies and advise the private sector in thedevelopment of tourism-related activities and resources; and

• Make and execute contracts and agreements for periods of up tofive years.

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Exhibit 1.1Hawaii Tourism AuthorityBoard of Directors

Board Member Company/Position Representing

Roy Tokujo

(Chair)

Cove Entertainment

President & Chief Executive Officer

City & County of

Honolulu

W. David P. Carey III

(Vice chair)

Outrigger Enterprises, Inc.

President & Chief Executive Officer

At-large

Gary J. Baldwin

Kauai Technology Center

Managing Director

Kauai County

Shari W. Chang

Aloha Airlines

Senior Vice President of Sales & Marketing

At-large

David H. Gleason

The Dunes at Maui Lani

General Manager

Maui County

Brian Minaai

Department of Transportation

Director

Ex-Officio

(non-voting)

Millie Kim

Millicent Kim Inc.

President

Hawaii County

Gilbert M. Kimura

Japan Airlines

Regional Sales Manager

At-large

Kalowena C. Komeiji

Not available

Community

Dr. Seiji Naya

Department of Business, Economic

Development and Tourism, Director

Ex-officio

(voting)

Peter H. Schall

Hilton Hawaiian Village

Senior Vice President and Managing Director

At-large

Keith Vieira

Starwood Hotels & Resorts Worldwide, Inc.

Senior Vice President

At-large

Ron Wright

Continental Airlines

Managing Director Sales & Marketing

At-large

Source: Hawaii Tourism Authority.

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In June 1999, the authority prepared Ke Kumu—Strategic Directions forHawaii’s Visitor Industry. The plan identifies and describes sevenstrategic initiatives:

1. Communication and community relations2. Marketing3. Events4. Product development5. Airlift6. Infrastructure and support services7. Regulations and investment incentives

The authority intends that Ke Kumu provide the overall direction forHawaii’s visitor industry in the twenty-first century and beyond.

The Tourism Special Fund provides a dedicated source offunding

Act 156, SLH 1998, also created the Tourism Special Fund. The fundcollects 37.9 percent of the State’s transient accommodations taxrevenues. The authority must use the fund moneys for the purposes setforth in Chapter 201B, HRS. However, no more than 3 percent of themoneys in the fund can be used for administrative expenses. Fundmoneys must also be used for salaries and expenses of the Office ofTourism in the Department of Business, Economic Development andTourism. All of the authority’s revenues come through the fund.

During FY1999-00, $64.2 million was deposited into the TourismSpecial Fund and $60.5 million was expended by the authority. Of thisamount, $58.7 million, or approximately 97 percent, was spent oncontracts. Revenues during FY2000-01 increased to $67.7 million.Expenditures that year were slightly higher than the year before at $60.8million, with $59.3 million spent on contracts and other services for afee. Exhibit 1.2 shows the revenues and expenditures.

The objective of the Department of Business, Economic Developmentand Tourism is to make broad policy determinations with respect toeconomic development in the State. The department is also charged withstimulating economic development efforts that are likely to expand theState’s economy. In addition to overseeing the development of thetourism industry and the operation of the Hawai‘i Convention Center, thedepartment also provides research and economic analysis on a variety ofissues.

The Department ofBusiness, EconomicDevelopment andTourism plays severalroles

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Exhibit 1.2Tourism Special FundRevenues and Expenditures, FY1998-99 through FY2000-01


$-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

FY1998-99 FY1999-00 FY2000-01

Revenues

Expenditures

Office of Tourism has planning responsibilities

During the 1990 Regular Session, the Legislature found that thegovernment needed to coordinate and plan tourism growth anddevelopment in light of the state’s substantial dependence on tourism.Act 293, SLH 1990, created the Office of Tourism and charged it withthe responsibility of planning for the integrated and coordinateddevelopment of the tourism industry. However, in accordance withSection 201-92, HRS, the Office of Tourism began providing assistanceto the Hawaii Tourism Authority on January 1, 1999.

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Research and Economic Analysis Division provides tourismresearch

Act 156, SLH 1998, charged the Department of Business, EconomicDevelopment and Tourism with the responsibility for tourism researchand statistics. The department’s Research and Economic AnalysisDivision collects, compiles, interprets, and publishes information andstatistical data on all aspects of the economy. On January 1, 1999, theLegislature transferred the tourism research functions of the HawaiiVisitors and Convention Bureau to the division. The departmentestablished a Tourism Research Branch within the division to providetimely information on Hawaii’s visitors through extensive visitor surveyprograms, primarily conducted by survey research firms under contract.The branch currently has two economists and one research statistician tooversee the collection of visitor data.

Hawai‘i Convention Center is now under the purview of theHawaii Tourism Authority

In 1988, the Legislature established the Convention Center Authority,administratively attached to the Department of Business, EconomicDevelopment and Tourism, to approve the proposed convention centerdevelopment plan and to supervise the construction of the facility.Construction was completed on October 13, 1997. However, ourFebruary 2000 Audit of the Convention Center Authority (ReportNo. 00-08) found that, among other things, the Convention CenterAuthority needed to monitor the convention center operator, three majorpunchlist items (outstanding repairs or incomplete items) were stillunresolved, and there were no provisions for continued oversight oncethe Convention Center Authority sunset. On June 30, 2000, theConvention Center Authority sunset, and the Hawaii Tourism Authorityassumed the responsibility of operating, managing, and maintaining theHawai‘i Convention Center.

1. Assess whether the Hawaii Tourism Authority is managedeffectively and efficiently.

2. Assess whether the Hawaii Tourism Authority has adequatelyplanned to manage the strategic growth of Hawaii’s visitor industry.

3. Make recommendations as appropriate.

Objectives of theAudit

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Our assessment of the effectiveness and efficiency of the HawaiiTourism Authority’s management encompassed a review of thefollowing: (1) contracting management, (2) personnel and organizationalmanagement, and (3) progress to date in overseeing the Hawai‘iConvention Center. Our assessment of whether the authority hasadequately planned to manage the strategic growth of Hawaii’s visitorindustry primarily focused on the authority’s efforts to develop, utilize,and improve its strategic plan.

We reviewed pertinent laws, statutes, audits, reports, and studies. Wealso reviewed planning documents, strategic planning information,correspondence, and board and committee meeting minutes. Ourfieldwork also included reviews of pertinent contracting, personnel, andconvention center files at the authority. We conducted interviews withauthority board members, the chief executive officer, and authority staff.We contacted attorneys from the State Ethics Commission and theDepartment of the Attorney General. We also interviewedrepresentatives from the Department of Business, EconomicDevelopment and Tourism; organizations awarded contracts by theauthority; the convention center operator; and the University of Hawaii’sSchool of Travel Industry Management. Finally, we contacted andobtained information from other states’ tourism offices and their visitorsand convention bureaus.

Our work was performed from May 2001 through December 2001 inaccordance with generally accepted government auditing standards.

Scope andMethodology

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Chapter 2: The Hawaii Tourism Authority Is Plagued by an Alarming Array of Management Deficiencies

Chapter 2The Hawaii Tourism Authority Is Plagued by anAlarming Array of Management Deficiencies

The Legislature had high hopes when it created the Hawaii TourismAuthority. Because tourism is the state’s lifeblood, the Legislatureentrusted the authority with great flexibility and many millions of dollarsfrom a dedicated funding source. We found that the authority has neitherflexed its considerable muscle wisely nor placed enough emphasis onresults. The authority carries out its work mainly through contracts withscores of private individuals and organizations and has spent as much as$64 million annually for this purpose. However, the authority is makingthese expenditures without clear goals, ways to measure performance, oran adequate management framework. As a result, in its three years ofexistence, the authority’s achievements are unknown.

The authority’s Board of Directors has the principal responsibility forfulfilling the authority’s mission of managing the strategic growth ofHawaii’s visitor industry. The National Center for Nonprofit Boards hasoutlined 11 basic functions of a board, including the following:

• Approving and periodically revising long-range plans.

• Overseeing the organization to ensure that objectives are beingachieved in the best fashion possible.

• Working closely and interactively with the executive and,through him/her, with the staff.

• Establishing broad policies to cover situations that requireconsistency.

• Ensuring that its basic legal and ethical responsibilities arefulfilled.

• Managing adequate financial resources.

• Continuously appraising itself and periodically analyzing itsperformance.

We found that the authority’s board of directors has failed to fulfill itsprimary mission and basic functions outlined above. In 1999, the boardhired a contractor (Fishman Enterprises, Inc.) to administer theauthority’s business operations and to provide management and planningguidance to ensure that the authority operates successfully and is

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organized effectively. Although the contractor failed to provideadequate administrative leadership and guidance, the board is ultimatelyaccountable for the operations of the authority. After more than threeyears of existence, the board has failed to implement a managementframework necessary to ensure the authority operates successfully andmanages its sizeable resources prudently and in the state’s best interests.

1. The Board of Directors of the Hawaii Tourism Authority has failedto provide the vision, leadership, and direction necessary to ensurethat the authority achieves its primary mission.

2. The authority is fraught with serious management problems. As aresult, significant sums of public funds are administered poorly andwith unknown benefit to the state.

3. The authority has taken initial steps to adequately manage theHawai‘i Convention Center; however, a number of issues are stillunresolved.

At its core, strategic planning is managing for results. It has beendefined as a long-term, future-oriented process of assessment, goalsetting, and strategy building that maps an explicit path between thepresent and a vision of the future. Strategic planning relies on carefulconsideration of an organization’s capabilities and environment, andleads to priority-based resource allocations and other decisions. Theboard’s strategic planning process failed to incorporate these elements.Due to this failure, the board cannot ensure that it is able to manage forresults and fulfill its mission. As a result, we found weak and ineffectivemanagement and operational leadership at the Hawaii TourismAuthority. There are also indications of possible ethics issues involvingthe authority, and the board failed to comply with public meeting laws.

Comprehensive strategic planning should include:

1. A process to monitor progress that allows the agency to manage forresults;

2. The meaningful involvement of local communities to obtain theirsupport and maximize the effectiveness of planning efforts; and

3. Performance measures that ensure accountability.

Summary ofFindings

The Board HasFailed to Providethe HawaiiTourism Authoritywith AdequateVision,Leadership, orDirection

The authority’sstrategic planningprocess was deficient

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In 1999, the National Conference of State Legislatures reported thatstates could greatly benefit from establishing comprehensive masterplans for tourism development. A strategic plan is an agency’scomprehensive plan to carry out its mission. Industry and managementliterature contains checklists for comprehensive tourism and strategicplans. Among some of the specific key elements of strategic plans are:

• infrastructure analyses;

• environmental considerations;

• specifications of implementation and monitoring procedures;

• a description of the program evaluation used in establishing orrevising goals and objectives, with a schedule for future programevaluations;

• a methodology statement; and

• a schedule for future program evaluations.

Ke Kumu, the authority’s strategic plan, does not contain these elements.During the 1999 community meetings, speakers noted concerns thatreflected the absence of the elements in Ke Kumu. For example,stakeholders and members of the public pointed out the following:

1. There were no satisfactory answers to growth limitations and thecarrying capacity of the islands;

2. There was a need to be closely informed of the authority’sobjectives, operating plan and progress toward achieving goals; and

3. The authority has to be very specific in terms of accountability andimplementation.

Changes in such factors as economic conditions, community values, andindustry trends make it essential to review strategic plans on a regularbasis. Strategic planning guidelines note that in order to address thesechanges, the plan should be reviewed at least annually and updated whennecessary. However, the authority has no schedule for periodicallyreviewing Ke Kumu.

Industry literature also notes the importance of figuring local residentsinto tourism plans. The authority’s own Hawaii Tourism ProductAssessment study that served as a foundation for Ke Kumu acknowledgesthat local communities must be given a meaningful role in planning. In

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addition, input must be a priority of the authority in order to obtain thesupport of community groups and to maximize the effectiveness of itsoverall planning efforts.

Although the authority solicited public input the month after the initialdrafting of Ke Kumu, it did not subsequently incorporate any of thatinput into the plan. This failure to incorporate input occurred eventhough the authority gave stakeholders the expectation that Ke Kumuwould be revised after the public was provided the opportunity to givetheir input. Ke Kumu was never revised. As a result, the authority failedto take advantage of an opportunity to obtain public support.

The authority uses visitor expenditures as the primary indicator tomeasure performance. However, other states have pointed out problemswith this indicator. In Texas and Louisiana, visitor spending was used asa performance measure. The Sunset Advisory Commission in Texasconducted a review of Texas’ Tourism Division and concluded that it isdifficult to determine the accuracy of measuring performance throughvisitor spending. Louisiana’s Legislative Auditor found that visitorspending is not valid for measuring the Louisiana Office of Tourism’sperformance. Louisiana’s auditor found that the performance indicatorand the underlying data did not always match.

Part of the difficulty in developing valid performance measures is thatthere is no industry-based standard. The lack of a standard, combinedwith the industry use of different methodologies, estimates, and surveys,makes it difficult to evaluate the impact of organizations such as theHawaii Tourism Authority. External factors over which there is little orno control add to the difficulty of measuring performance. Florida’sOffice of Program Policy Analysis and Government Accountability(OPPAGA) noted that outcome measures are significantly affected by avariety of factors outside the Florida Commission on Tourism’s control,such as weather and economic conditions.

Although measuring tourism performance is difficult, state tourismoffices have not escaped accountability. Arizona’s Office of the AuditorGeneral found that although measuring economic impact is challenging,the Arizona Office of Tourism should develop measures to demonstrateits effectiveness in stimulating statewide tourism. Louisiana’sLegislative Auditor recommended that Louisiana’s Office of Tourismwork with the Office of Planning and Budget to develop valid indicatorsto specifically measure the Office of Tourism’s performance. Florida’sOPPAGA recommended that the Florida Commission on Tourism and itsmarketing contractor develop measures and standards that more directlyassess whether their tourism promotion activities are adding value inattracting visitors. OPPAGA concluded that as a condition for receiving

Measuring the directimpact of theauthority’s efforts isdifficult

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future funds, the commission and its contractor should be required topresent return-on-investment analyses, substantiating that their majortourism promotion activities add value by stimulating tourism abovelevels that would have occurred without the activities being performed.

To oversee the staff, the board must appoint an executive directorexempt from the Civil Service Law but compensated at a salary level setby the governor. In late 1998, the board approved a job description forthe executive director and received gubernatorial approval to set theposition’s salary range at $85,000 to $120,000. The governor also gavethe board flexibility to set a higher salary range or to offer a bonus asnecessary.

Despite plans to hire an individual for the executive director position, theauthority opted to contract the services of an independent contractor asits first executive director. On April 1, 1999, the authority entered into acontract with Fishman Enterprises, Inc. (Fishman Enterprises), adomestic profit corporation incorporated in Hawaii in 1985, to overseethe staff and operation of the authority. Under the contract, the presidentof Fishman Enterprises, Robert J. Fishman (Mr. Fishman), must“personally supervise and provide the work and services” set forth in thecontract. Examples of the specific contractual duties and responsibilitiesof Fishman Enterprises included the following:

• Providing management and planning guidance to ensure thesuccessful operation of the authority, including effectiveorganization and use of available resources;

• Administering the authority’s operations, including developinginternal policies and procedures relating to the authority andproviding for the development of accounting controls and cashflow management; and

• Participating in identifying problems, issues, objectives, andcriteria for evaluating the effectiveness of contracts andprograms approved by the authority.

In addition, the contract specifically noted that since the contributions ofMr. Fishman are unique, Fishman Enterprises could not assign ordelegate any of Mr. Fishman’s services or duties to any other employeesof Fishman Enterprises or contract with any third parties to perform Mr.Fishman’s duties.

The contract requires Fishman Enterprises to be compensated for a totalamount not to exceed $546,000 for services provided from April 1, 1999through March 31, 2002. The authority was also required to reimburseFishman Enterprises for transportation and medical insurance expenses.

The authority’scontract with FishmanEnterprises, Inc. issuspect

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Fishman Enterprises may also be paid annual bonuses for exceptionalperformance. However, the history and justification behind theauthority’s decision to contract with Fishman Enterprises for up to$546,000 over a three-year period is highly suspect.

The authority was unable to provide any documentation regarding thehistory or decision to contract with Fishman Enterprises. In addition, itsdecision to contract with Fishman Enterprises as an independentcontractor rather than hire Mr. Fishman as an employee is questionableand raises concern regarding possible tax and liability implications.Finally, the authority’s failure to fully document expenditures madeunder this contract, or to evaluate the performance of FishmanEnterprises timely or appropriately, has not ensured that state moneyswere used prudently.

The authority is unable to justify the selection of its first chiefexecutive officer

On October 27, 1998, the board created an Executive Director SearchStanding Committee comprised of Shari Chang, Roy Tokujo, KeithVieira, and (former board member) Diane Quitiquit. More than fourmonths later, the board introduced Mr. Fishman as the authority’s newexecutive director. However, the authority failed to maintain a completefile of documents relevant to its contract with Fishman Enterprises. Inaddition, current and former board members and staff do not know thelocation of documents to support the Fishman Enterprises selection (suchas documents used to evaluate and rank the final candidates). Withoutthese documents, the authority has been unable to provide sufficientproof that its decision to contract with Fishman Enterprises was properand justified.

Our review of board meeting minutes and executive session minutes alsofailed to provide any information regarding the selection of FishmanEnterprises. From October 1998 to early March 1999, there were onlybrief discussions of the search committee’s progress during boardmeetings. Although the board went into executive session three times todiscuss the selection, it did not begin keeping executive session minutesuntil August 1999—after Fishman Enterprises was awarded the contractand in violation of Chapter 92, HRS (Public Agency Meetings andRecords). Current and former board members and chairpersons werealso unable to provide us with meaningful information on the historybehind the Fishman Enterprises contract. We also contacted the deputyattorney general currently assigned to the Hawaii Tourism Authority toreview any pertinent files or documents that may have been retained bythe attorney general’s office. However, the deputy attorney general wasunable to provide us with any meaningful information.

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The lack of information regarding this significant contract makes itdifficult to determine whether the selection process was fair and that theboard selected the best possible contractor to operate and manage theauthority.

The Fishman contract contains a number of questionableprovisions

The Fishman Enterprises contract also contains a number of unfavorableprovisions. The contract allows the State to terminate the contractualrelationship with Fishman Enterprises for a number of causal reasons,but not for “poor performance.” However, the contract does not clarifywhether this relates to the performance of Fishman Enterprises or Mr.Fishman, or whether it refers to the state of Hawaii’s economy during thecontract period. Interviews with current and former board membersinvolved in the selection of Fishman Enterprises failed to clarify theintent of the clause. One board member reported that the board was nothappy with this clause because it was not clear what “poor performance”related to. However, another board member purported that “poorperformance” referred to the poor performance of Hawaii’s economy. Athird board member did not even know that this clause existed andtherefore could not comment on it.

The contract also states that Mr. Fishman should devote such productivetime, ability, and attention to the State’s business as required by theauthority’s board during the contract. However, the contract states that itis impracticable for the authority to ascertain or anticipate the portion ofthe contractor’s time to be devoted to the authority. Although boardmembers expected a full-time chief executive officer, the contract withFishman Enterprises did not ensure that this expectation would be met.

In addition, based on the contract terms and guidance from the InternalRevenue Service (IRS) Employer’s Supplemental Tax Guide and othersources, it appears that Mr. Fishman should have been treated as anemployee, which could result in tax and liability implications.Generally, an employer must withhold and pay income, social security,and Medicare taxes on wages paid to a “common-law” employee. If Mr.Fishman (as president of Fishman Enterprises and sole provider of thecontracted services) was improperly treated as an independentcontractor, the Hawaii Tourism Authority could be liable for paying thetaxes, with interest, that should have been withheld and paid to the IRSand state tax authorities.

Finally, the contract allowed the board to conduct periodic evaluations ofFishman Enterprises but did not specify how often these evaluationswould take place or the criteria by which it would evaluate FishmanEnterprises. The review committee in fact did only one evaluation butdid not present it to the full board until after the end of the contract. The

16


board approved its Administrative Committee’s evaluation of FishmanEnterprises on November 14, 2001 in executive session, more than twoand a half years after the corporation was contracted to provideoperational and management services and after the contract wasterminated by Fishman Enterprises on November 5, 2001. Withoutperiodic evaluations, the board had failed to detect a number of FishmanEnterprises’ weaknesses—particularly in the area of administrativeaccountability.

Payments to Fishman Enterprises are not always well-documented

Fishman Enterprises was paid for professional services and reimbursedfor various goods and services, including travel, medical, parking, andbusiness-related meals and expenses. For the period of April 1, 1999through October 15, 2001, the authority had a total of $492,945 ininvoices from Fishman Enterprises. However, the authority sometimesfailed to fully document the amount billed by or paid to FishmanEnterprises. For example, the authority agreed to pay FishmanEnterprises semimonthly payments of $7,583 based on FishmanEnterprises’ submission of original invoices specifying the amount due.However, we found that many of these semimonthly invoices weremissing. The authority was missing $106,162 worth of invoices forFY1999-00 and $68,250 for FY2000-01.

The lack of complete documentation of contract costs weakens theauthority’s ability to ensure that payments were accurate and made inaccordance with this contract. The missing semimonthly invoices maybe indicative of an array of other missing invoices related to the Fishmancontract.

The board is responsible for ensuring that the authority develops thecapacity to achieve its mission and objectives. To develop this capacity,the board should vigilantly hire, manage, and evaluate its chief executiveofficer—the individual with immediate responsibility for ensuring thatthe authority is soundly conceived and operated. The roles andresponsibilities of the board and its chief executive officer should also beclearly defined and adhered to. Finally, in addition to evaluating its chiefexecutive officer on a regular basis, the board should also evaluate itsperformance as the governing body of the authority. We found,however, that the board has failed to perform these basic functions.

Management andoperational leadershipremain unclear anddeficient

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Generally accepted roles and responsibilities of the board andthe chief executive officer require enforcement

Cyril O. Houle’s Governing Boards outlines some basic principles foridentifying and establishing the role and responsibilities of a board andthe chief executive officer. These include the following:

1. The board is corporate and acts only on the basis of group discussionand decision. The executive is individual and acts with the authorityand integration of a single personality.

2. The board is continuous; the executive is temporary. The boardendures and it has an obligation to always act in terms of a long-range perspective. The executive director has the directresponsibilities of operation.

3. The board has, at most, only minimal separate staff to support itswork. The executive has a hierarchy of helpers.

Our review of the board’s organization found that the authority has yet toestablish some of the basic organizational fundamentals and controls.This has led to internal conflict over the role board members should playin the authority’s operations. Many staff at the authority feel that themembers of the board are too involved in its day-to-day operations. Staffcomplain that they are often confused over work assignments and thepriority of these assignments, which they receive directly from bothauthority administrators and board members.

Houle suggests the following:

The executive director should be the intermediary figure between thestaff and the board. When lines of contact run directly betweenmembers of the board and staff without knowledge or assent of theexecutive director, problems of communication and decision makingcan increase, matters can be seen out of proper perspective, thecomments of individual board members can be accepted as establishedpolicy or practice, special interests can be advanced, and the flow ofsmooth operations can be disrupted.

The chief executive officer and the board chairperson need to clarify theroles of the chief executive officer and board members to ensure that theauthority operates efficiently with clear lines of authority andcommunication.

The adequacy of the authority and board’s performancecannot be assured

The ultimate purpose of assessment is to make sure that an organizationrealizes its goals in the most efficient and effective way. One of the most

18


important responsibilities of the board is to assess the progress andhealth of the organization, which requires an appraisal of the board itself.According to the National Center for Nonprofit Boards, board membersneed to periodically “take an honest and hard look at themselves.” Wefound no evidence that the board has formally evaluated itself or theauthority as an organization. Without this type of review, the board isunable to assess the progress and health of the authority.

In addition to having the principal responsibility for fulfilling theauthority’s mission, the board is also responsible for the legalaccountability of the authority’s operations. Board members are requiredto abide by Chapter 84, HRS. This chapter promotes high standards ofethical conduct in state government and prescribes a code of ethics forboard members and other public employees. The authority and its boardmembers are also required to abide by Chapter 92, HRS. This chapter,covering public agency meetings and records, outlines the Legislature’sintent to open up the governmental process to public scrutiny andparticipation. The board’s failure to adhere to Chapter 92, and certainissues relating to Chapter 84, raise questions on its ability to lead andmanage the authority.

The authority or one of its board members may have ethicsissues

There are indications of possible ethics issues involving the authority orone of its board members with regard to the State Code of Ethics’ fairtreatment, conflict of interest, and notification provisions. Exhibit 2.1outlines possible issues.

In addition to ethics law issues, there are other questionable aspectsabout the two contracts discussed in Exhibit 2.1. For example, the 2000agreement between the authority and the nonprofit organization at whicha board member was employed was dated only one day before the fundedevent took place in February 2000. A second agreement was executedfor the same event after it took place, but authority staff have beenunable to explain the need for the second agreement. In addition, the2001 contract for that year’s “edition” of the event was signed after theevent was held in February 2001. Moreover, the nonprofit organizationhas not yet submitted its final report under the 2001 contract, more thaneight months after the event occurred.

Another contract, awarded by the authority to the nonprofit organizationwhen the authority board member was still the organization’s president,is also questionable. In June 1999, the organization received a letterfrom the authority indicating that it had been awarded $75,000 for aproduct development project. However, the contract for this project,

The board should havebeen more carefulabout ethics laws andpublic meeting laws

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Exhibit 2.1Indications of Possible Ethics Issues

*Pursuant to Section 84-3, HRS, “employee” includes any nominated, appointed, or elected officer or employee of theState, including members of boards, commissions, and committees.

DATE

EVENT

RELEVANT ETHICS LAWS AND POSSIBLE ISSUES

1998 January –

December October

Subject individual is president and director of a private nonprofit organization. Governor appoints subject as authority board member.

1999

January – December April July October

Board member remains president and director of private, nonprofit organization. Authority approves funding for two events awarded to board member’s nonprofit organization. The board member was present at the approval meeting and there is no evidence he recused himself from the vote to award the two contracts. The board, including the subject board member, approves submitting a proposal to the National Football League (NFL) for Hawaii to host an NFL event. Board reports a two-year deal was made to hold the NFL event in Hawaii during 2000 and 2001. The authority contracts with the board member’s nonprofit organization to manage both years of the contract for a total of $750,000.

Section 84-13, HRS, Fair Treatment . No employee* shall use or attempt to use his/her official position to secure or grant unwarranted contracts for himself/herself or others. • The board member may have used his board

membership to award contracts to his nonprofit organization while he was its president.

Section 84-14, HRS, Conflicts of Interests . No employee* shall take official action directly affecting a business or other undertaking (including nonprofit businesses) in which he/she has substantial financial interest (including a directorship or officership in a business). • The board member clearly took action on the two

events awarded to his nonprofit organization when he was its president. However, the board member’s role with the two NFL contracts is unclear because there is no evidence in the board meeting minutes that the full board approved these contracts.

Section 84-15, HRS, Notification . Unless competitive sealed bidding or competitive sealed proposals are used, when a state contract over $10,000 is awarded to a business in which an employee* has a controlling interest, the contracting agency must post a notice of its intent to award the contract and file a copy of the notice with the State Ethics Commission at least ten days before the contract award. • The State Ethics Commission could not locate

any such notices on file.

2000

January

Board member is no longer an officer of the nonprofit organization but is named managing director of a facility managed by the organization. The organization paid the board member $100,000 in salary and consulting fees in 2000.

20


which went into effect in July 1999, awarded the organization $175,000.According to authority staff, the increase resulted when three of theorganization’s product development proposals were combined.However, the authority could only document the existence of the original$75,000 proposal.

The board has failed to identify these possible ethics issues andquestionable contracts. As a result, the authority’s entire contractingprocess appears tainted and open to question.

The authority failed to comply with state laws governing publicmeetings

The importance and necessity of meeting minutes is outlined in statestatutes and general literature. Well-kept minutes are indispensablerecords of the deliberations and decisions of the board and can prove tobe a powerful protection for the board, both in terms of individual issuesand as a demonstration of its general carefulness. Pursuant toSection 92-9, HRS, the board is required to keep minutes of all itsmeetings. The minutes must include the substance of all mattersproposed, discussed, or decided, and a record, by individual member, ofany votes taken.

We found that the authority has failed to keep minutes of all its executivesessions. Since its inception in 1998, the authority went into executivesession 28 times to discuss confidential, proprietary, and personnelmatters. We found minutes for only 9 of the 28 sessions. The authoritydid not begin keeping minutes for its executive sessions until August1999. In addition, no minutes existed for all executive sessionsconducted in 2000. The authority has failed to fulfill the intent ofChapter 92, HRS—to protect the people’s right to know.

We also found that the Hawaii Revised Statutes do not accurately reflectthe authority’s duties and responsibilities. Section 201-92, HRS,establishes an Office of Tourism within the Department of Business,Economic Development and Tourism. The basic responsibility of thisoffice is to promote, market, and develop the tourism industry in thestate. With the creation of the Hawaii Tourism Authority in 1998, theOffice of Tourism was directed by the Legislature to provide assistanceto the authority beginning in January 1999.

Officials from the authority and the Department of Business, EconomicDevelopment and Tourism acknowledge that the authority has assumedthe responsibilities of the Office of Tourism and that this office existsonly on paper, but neither the authority nor the department has takensteps to seek repeal of sections of Chapter 201 and 203, HRS, thatestablish the Office of Tourism and require it to perform various duties.

Hawaii RevisedStatutes do notaccurately reflect theauthority’s duties andresponsibilities

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For example, pursuant to Section 201-93, HRS, the Office of Tourismshall be responsible for developing and implementing the state tourismmarketing plan (emphasis added). According to Section 201B-3, HRS,the board of directors of the authority may develop and implement thestate tourism strategic marketing plan (emphasis added). Accordingly,the authority is not statutorily compelled to perform any of the functionsoutlined in Chapter 201B, HRS.

The authority is unable to adequately account for its significant financialand human resources. For example, the former chief executive officer’sfailure to ensure the implementation of adequate internal controls overcontracting has resulted in serious deficiencies in the contracting processand opens the authority to waste and fraud. Without this contractingframework, which should include written policies and procedures, theauthority is also missing key documents supporting the contractingprocess and is inadequately monitoring contracts. The authority has alsoentered into two contracts for over $135 million that contain provisionsdisadvantageous to the State. Compounding these problems aredeficiencies in the authority’s personnel and organizational framework.We found outdated and inaccurate position descriptions, unclear lines ofauthority, and staff frustration.

Section 201B-7, HRS, authorizes the authority to enter into contracts andagreements for such activities as the following:

• Tourism promotion, marketing, and development;

• Product development and diversification;

• Promotion, development, and coordination of sports-relatedactivities and events; and

• Promotion of Hawaii as a place to do high technology business.

Section 201B-12, HRS, exempts the authority from the Hawaii PublicProcurement Code or any other legal requirements for competitivebidding for project agreements, construction contracts, lease andsublease agreements, or other contracts. Authority staff are responsiblefor monitoring and facilitating all contract and agreement functions.Currently, the authority contracts for services in the following majorareas:

1. Events—efforts to develop and support prestigious events thatgenerate cost-effective awareness of the Hawaii brand throughnational and international exposure.

InadequateManagement HasNot Ensured theAppropriate Use of$144.5 Million inState Resources

Serious contractingdeficiencies require theauthority’s immediateattention

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2. Product Development—includes new tourism events, community-based tourism programs, experiences, and attractions related toagriculture, culture, education, nature, and sports.

3. Business Destination Marketing—includes efforts that emphasize themarketing of Hawaii as an attractive business destination, withspecial emphasis in health and wellness and the technology field.

4. Other—includes some product development, festivals, other events,and miscellaneous services.

As shown by Exhibit 2.2, the majority of the authority’s contracts andagreements fall under “other.” Since FY1998-99, the authority’s “other”contracts have exceeded $112.8 million. Appendices A through Eprovide complete listings of the authority’s contracts and agreementsfrom its inception through FY2001-02.

Exhibit 2.2Hawaii Tourism AuthorityAgreement and Contract Totals, FY1998-99 to FY2001-02 (as of October 2001)

Note: # = number of contracts.

Source: Contract listings provided by the Hawaii Tourism Authority. The accuracy and completeness of the contract listings arequestionable as discussed in the report.

Year Amount # Amount # Amount # Amount # Amount # Amount #FY1998-99 $143,300 12 - $477,000 10 $735,000 34 $49,823,347 6 $51,178,647 62FY1999-00 124,120 11 - 5,117,000 27 3,512,950 101 866,947 3 $9,621,017 142FY2000-01 175,812 2 - - 2,443,000 67 62,171,613 42 $64,790,425 111FY2001-02 - 500,000 7 - 1,197,000 51 - 1,697,000 58CY2000 - - 4,525,000 6 - - 4,525,000 6CY2001 - - 5,309,299 15 - - 5,309,299 15Total $443,232 25 $500,000 7 $15,428,299 58 $7,887,950 253 $112,861,907 51 $137,121,388 394

TotalOther Contracts

Product Development

ContractsEvent Contracts

Business Destination Marketing ContractsAgreements

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Effective January 1, 2000, the authority entered into a three-year contractwith the Hawaii Visitors and Convention Bureau to provide integratedmarketing management services. The purpose of these marketingservices includes increasing promotional presence and brand identity inten major market areas. Over the three-year period, the authority agreedto pay the bureau $117 million. As shown in Exhibit 2.3, the contractwith the Hawaii Visitors and Convention Bureau for integratedmarketing comprised about two-thirds (66.7 percent) of the authority’sexpenditures for FY2000-01.

Exhibit 2.3Tourism Special Fund Expenditures (FY2000-01)

*HVCB = Hawaii Visitors and Convention Bureau


Administrative Expenses2.6%

Events and festivals4.8%

Community Based Product Development

6.7%

NFL Events7.7%

PGA1.6%

HVCB-Meeting, Conventions, and Incentives

8.5%HVCB-Integrated Marketing66.6%

Other1.5%

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Despite the significant amount of funds spent on contracts, the boardfailed to ensure that the chief executive officer establish written internalpolicies and procedures for contracting. This has created deficiencies inthe authority’s contracting process and has hindered the development ofan adequate control structure. Proper internal controls allowmanagement to safeguard resources against waste, fraud, or inefficientuse; encourage and measure compliance with agency policies; andevaluate the efficiency of operations. The authority’s chief executiveofficer oversees the authority’s staff and operations but failed to provideguidance to ensure the authority operates successfully, which includesdeveloping internal policies and procedures.

Contracting control structure lacks rigor

Written policies and procedures are a fundamental element of internalcontrol. Their purposes are to:

• define authority, responsibility, and procedures,

• standardize and communicate approved practices,

• train new personnel and provide guidance,

• provide standards to evaluate performance, and

• increase the level of professionalism.

However, the authority has failed to establish written policies andprocedures for contracting. Instead, the authority has ambiguous oralprocedures that allow differing interpretations by staff. This has resultedin contracting inconsistencies. For example, an authority administratorreported that he began dating invoice payment authorizations in late2000—a procedure allegedly relayed verbally to appropriate staff.However, we discovered subsequent undated authorizations anddisagreement as to when the procedure was actually implemented. Atleast two authority staff members reported that the procedure wasimplemented under the Office of Tourism and “adopted” by theauthority. Another staff member reported that the procedure wasimplemented in approximately July 1999.

The authority’s failure to thoroughly clarify and disseminateexpectations in written policies and procedures has resulted in littleassurance that the inevitable disconnects between intent and practice areminimized. Without written policies and procedures, the authority hasbeen unable to become a professional purchasing organization withappropriate internal controls.

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Contract awarding process is defective

A principle of successful contracting is to maintain a record of the searchfor contractors. The contracting agency should keep accurate records ofall meetings, conferences, oral presentations, evaluations, and decisionsoccurring during the evaluation-and-award stage of contracting.

We found that the authority lacks adequate documentation to support itsproposal evaluation process and to justify its contract awards. Theauthority has no written policies and procedures defining the purpose ofproposal evaluations and describing the process for conducting theproposal evaluations. Although the authority has used proposalevaluation forms during the selection process for some contracts, theseforms were not completed for all proposals, or, in some instances, theauthority could not locate the completed forms.

For FY2001-02, the authority’s team of three evaluators reviewed 145product-development proposals; of these, 51 were awarded contracts.However, we were unable to find adequate documentation to support theaward of 29 percent of the 51 contracts. The files for these contractswere either missing a score from one of the three evaluators or weremissing a completed evaluation form. The evaluation forms are effectivetools only if all are completed. Inadequate support of the contractawarding process casts doubt that a fair process took place and leaves theauthority open to question.

Sound contracting practices are disregarded

Properly executed contracts are essential to ensure that the type andscope of services to be provided has been agreed upon, and the roles andresponsibilities of the State and contractors are clearly delineated toavoid confusion or misunderstanding. Allowing contractors to renderservices without a fully and properly executed contract is not a soundcontracting practice. However, the authority has disregarded thisprinciple. Of the 28 contracts we reviewed, 18 were signed by thecontractor and authority after the contract’s effective date. Four of the18 were signed after the contracted-for events had already occurred.

The authority has claimed that staffing shortages resulted in “retroactive”contracts. In one case, the authority admitted the contract “fell throughthe cracks.” However, the authority has not adequately addressed theissue of retroactive contracts, since this problem has continued into2001. Providing services without contractually defined roles andresponsibilities places the State and contractors in jeopardy should anylegal problems arise.

26


Multimillion dollar payments to Hawaii Visitors andConvention Bureau are made with little justification

Properly planned and well-written contracts clearly define the scope ofservices and provide a description of the expected outcomes, tying thecontractor’s remuneration to measurable deliverables. However, wefound that the authority cannot ensure that significant contract paymentsare adequately justified, meet the authority’s goals, or benefit the State’seconomy.

The authority is unable to hold the Hawaii Visitors and ConventionBureau (the bureau) accountable for the payments of up to $4 millioneach it makes to the bureau through two contracts worth $135.7 million.When asked how the bureau ties its remuneration to measurabledeliverables, the authority’s response was that payments to the bureauare made when invoices are received and are based on the availability offunds. However, the bureau’s invoices indicate only the time periodbeing billed and not the work accomplished. The authority is unable todemonstrate whether the money it expends on these considerablecontracts is used efficiently or effectively. Exhibit 2.4 contains a copy ofa sample bureau invoice.

The two contracts also provide the bureau 10 percent ($13.6 million) ofthe contracts’ costs for administrative expenses. However, the contractsdo not indicate how the 10 percent was determined, how the money willbe expended, or why this amount is necessary. A board memberindicated that the 10 percent was a previously existing guideline that theauthority’s contract negotiating team felt was acceptable to carry over tothe new contracts. However, this does not justify the need to pay 10percent—a significant amount of money considering the financialmagnitude of these contracts.

Contract monitoring is deficient

Establishing a reporting system that provides management with all theinformation required to manage risks and to maximize successfuloutcomes is fundamental to contract management. Contract reports mustbe relevant, concise, and timely. However, after many attempts, theauthority was unable to provide our office with an accurate and completecontract listing in a timely manner. We also identified a number ofdiscrepancies, some in the millions of dollars, in the authority’s contractlists, including duplicate listings and contract overstatements.

For example, the authority’s contract for the NFL Pro Bowl was listedtwice—once as $4,000,000 and once as $4,124,299 (the latter is correct).Information contained in the contract list also differed from informationcontained in the contract file for 12 of the 28 contracts we reviewed. For

27


Exhibit 2.4Hawaii Visitors and Convention BureauSample Invoice to the Hawaii Tourism Authority


28


example, one contract amount was cited as $400,000 in the list butshould have been $200,000 according to the contract file and authoritystaff.

Without a complete and accurate contract list, the authority cannotdetermine its total contract obligations. Essentially, the authority and itsboard are unable to determine what it has done with the millions in stateresources it has been entrusted with. In addition, uniform handling oftransactions is essential to produce reliable records and reports but ispossible only when all employees know how to process routinetransactions. However, the authority has not specifically assigned anystaff the responsibility for a contract list and management failed toprovide guidelines for maintaining the list. Some staff utilize a databaseprogram to track contracts while other staff utilize a spreadsheetprogram.

Contract files are incomplete and insufficient

Maintaining key contract documents provides an audit trail and helpsensure accountability. Such records are invaluable for audit purposes,resolving problems and disputes, and planning subsequent contracts.However, the authority’s contract files are not standardized, complete, orsufficient. No mechanisms are in place to ensure that contract files arecomplete, and no policy assigns responsibility for the files.

As a result, key contract documents are not filed in a manner that ensureseasy and ready access by authority staff. In some cases, it took staffseveral days to locate the documents that we requested. In other cases,staff were unable to answer our questions because the contract fileslacked sufficient documentation. For basic information on certaincontracts, staff even asked us to contact staff no longer employed at theauthority. The absence of key contract documentation leaves theauthority’s contracting process open to question and possible liability.

To perform its functions, the authority may employ staff not subject tothe Civil Service Law. In 1999, the authority employed ten professionaland secretarial staff whose primary responsibilities included carrying outboard directives, implementing the initiatives of Ke Kumu, and handlingthe day-to-day operations of the authority. In July 2000, the authority’sofficial organization chart reflected 25 positions—including one that hassince been abolished. By November 2000, the authority had filled 18positions, including four assigned to the State’s convention center.

We found that the authority lacks fundamental management controls thatwould ensure its staff operate efficiently and effectively. The neededcontrols are written policies and procedures, accurate positiondescriptions, a training and development program, and personnel

The lack of anoperational frameworkhinders authoritypersonnel

29


evaluations. The lack of controls has resulted in staff working outsidetheir position descriptions, and confusion and frustration among staffover their duties and responsibilities. Under these circumstances, it isnot surprising that contracting management is weak and its overallperformance in doubt.

Management functions are not outlined in written policies,procedures, or processes

According to Roy Sorenson’s The Art of Board Membership, one of thekey responsibilities of a board of directors is to develop written policesfor both its programs and personnel. Written personnel policies andprocedures guide and direct the activities of staff. The authority’s boardhas failed to ensure the development and implementation of suchmanagement controls. Authority administrators and board membersreport that they have yet to establish official written policies andprocedures for the organization. The lack of adequate policies andprocedures hinders staff in conducting their duties and responsibilitiesappropriately.

Lines of authority and organizational structure are unclear

We found many discrepancies and inconsistencies in the organizationalstructure of the authority. First, the official organization chart(Exhibit 2.5) does not reflect the authority’s actual operations. At leastone position shown on the chart has since been abolished. Discrepanciesalso exist in the supervisory relationship of certain staff members. Forexample, Exhibit 2.5 has the communication officer and a tourismspecialist reporting to the communication and special projectscoordinator. However, the communication officer and a tourismspecialist state that they have always reported to the chief administrativeofficer and the chief executive officer. In addition, the chart leaves acluster of 12 positions, including the chief administrative officer and thebudget/fiscal officer, unattached to the rest of the organization andapparently subject to no higher chain of command. The authority’sadministrators acknowledge that the official chart does not accuratelyreflect how the authority is operating.

In lieu of the official chart, the authority has created an informal chart(Exhibit 2.6) to better represent the organizational structure andoperations. However, we found a similar discrepancy in the reportingrelationships shown in the informal chart. The chart indicates that thechief administrative officer has no administrative authority over atourism specialist and communications officer. Yet staff in thesepositions state that they report to the chief administrative officer.

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Exhibit 2.5Hawaii Tourism AuthorityOfficial Position Organization Chart

Note: Abbreviations are as shown on the source document.

Source: Department of Business, Economic Development and Tourism.

HAWAI I TOURISMAUTHORITY BOARD

Executive Director

DBEDT

Private Secretary

Communicat ions& Special Projects

CoordinatorPolicy Specialist

Communicat ionsOfficer

Convent ion CenterCommuni tySpecialist

Convent ion CenterCommuni tySpecialist

Tourism Specialist IIIConvent ion Center

Secretary

HVCB EVENTS S M G

Chief Administrative OfficerConvention Center Execut ive

Secretary/Admin Assistant

Budget/FiscalOfficer

Accountabil i ty &Research

CoordinatorOff ice Manager Secretary/Clerk

ContractSpecialist

Account ingSpecialist

Convent ionCenter Fiscal

OfficerReceptionist Secretary

Tour ismSpecialist IV

Tour ism ProgramOfficer

Tourism Special ist V

Tourism Special ist IV

READ

31


Exhibit 2.6Hawaii Tourism AuthorityInformal Position Organization Chart

Note: Abbreviations are as shown on the source document.

Source: Department of Business, Economic Development and Tourism.

HTA Board

Chief Executive Officer

HTA Commit tees

Director o f Communicat ions andSpecial Projects

Director of Tour ism Programs

Secretary

Tour ismSpecial ist

Leg. Coord. /Tour ism Spec.

A D BCommunica t ions

Off icer

H V C BLeisure

H V C BC M I

S M GH C C

Chief Administrat ive Off icer

Tour ism Specia l is t

Admin. Asst .

Execut iveSecretary

Contracts &Program Mgr

Budget /F iscalOff icer

Strategic Planning& Account . Coord.

Acct . AssistantContractsSpecial ist

T E A M R E A D

Execut ive Assistant

HCC Commun i t yRelat ions Off icer

Secretary

32


An organizational structure is crucial to the successful performance of anorganization. Structure includes all the arrangements in an organizationthrough which the activities and behavior of its employees are directedtowards desired goals. Without an adequate organizational structure, theboard cannot ensure that the authority is operating effectively andefficiently.

Position descriptions are inaccurate and outdated

Position descriptions help ensure that an organization operateseffectively. They create an understanding of the requirements of theposition; assist with staff recruitment, interviewing, and selection; serveas a tool for staff orientation and training; and establish performancestandards and goal statements for future staff performance evaluations.To ensure that staff clearly understand their job duties andresponsibilities, position descriptions should be current and accurate.Inaccurate descriptions can reduce the effectiveness of training or canresult in the development of unrealistic performance standards.

Our review of the authority’s position descriptions found that many ofthem do not accurately reflect the duties and responsibilities of theposition or the supervisory controls over the position. We founddiscrepancies in the actual duties and responsibilities of staff whencompared with the duties and responsibilities outlined in their positiondescriptions. In addition, staff reported having supervisors other thanthose detailed in their position descriptions.

Part of the reason for these problems is the authority’s failure to updatemany of its staff position descriptions. For example, three of the positiondescriptions we reviewed reflect the duties of the employees when theywere assigned to the Office of Tourism under the Department ofPlanning and Economic Development (since renamed to the Departmentof Business, Economic Development and Tourism) prior the creation ofthe authority in 1998. These position descriptions have not been updatedto reflect the duties and responsibilities of these staff as members of theHawaii Tourism Authority. The existence of inaccurate descriptionsindicates that the board may not have adequately thought through theorganization and management of the authority.

No training and development program exists

The importance of training and development for staff cannot beoveremphasized. Adequate training ensures that staff obtain theknowledge and skills necessary to fulfill their responsibilities and areprepared for future advancement. According to Robert Kreitner’sManagement, “No matter how carefully job applicants are screened,typically a gap remains between what employees do know and what theyshould know. Training is needed to fill this knowledge gap.”

33


We found that the authority has yet to establish a training anddevelopment program to ensure staff are provided the necessary skillsand knowledge to perform their jobs and to remain current on emergingissues and trends in the tourism industry. Authority administrators reportthat training for their staff is primarily on-the-job. While on-the-jobtraining is useful, it should include formal development programs such asan understudy program, job rotation, or coaching. We found no evidencethat these types of formal programs take place at the authority. As aresult, the authority cannot ensure staff are able to maintain or maximizetheir existing skills, knowledge, and abilities.

Personnel evaluations are not conducted

Performance appraisals are tools used by management to evaluatewhether employees meet the performance requirements of their positionsand to improve performance. The authority has failed to establish aperformance appraisal system for its employees and to evaluate themaccordingly. Authority administrators state that they have no officialprocedure for evaluating staff. By not evaluating its employees, theauthority undermines its ability to ensure that staff are meeting theperformance requirements of their positions. The lack of evaluationsalso makes it more difficult for the authority to assess whether its goalsand objectives are being achieved.

We have conducted three audits of the Convention Center Authority.Our first report, released in 1998, recommended that that authoritycontinue to monitor the design/builder’s progress in rectifying designand construction flaws. Our second report, issued in 1999, examined theneed for state oversight of the convention center. In our most recentreport, released in February 2000, we found that the Convention CenterAuthority needed to establish an improved evaluation and monitoringmechanism of the convention center operator (SMG). We also foundthree major punchlist items still unresolved and no provisions forcontinued oversight of the center. Our current audit found progress inthese three areas; however, some issues still remain unresolved.

In 2000, we reported that three punchlist items were still unresolved.Punchlist items include outstanding repairs or incomplete items. Theseincluded the rooftop terrace concrete cracks, ballroom floor vibrations,and rooftop terrace noise. We recommended that the remainingpunchlist items be resolved to ensure that all state interests in theconvention center are protected and to ensure that the design/builder(Nordic/PCL) assumes all costs for which it is responsible.

Despite Efforts toManage theHawai‘iConventionCenter,Unresolved IssuesStill Exist

A potentially costlypunchlist item remains

34


The key issue holding up closure of the contract with Nordic/PCL is therooftop terrace deck repair. The punchlist items regarding the ballroomfloor vibrations and rooftop terrace noise have been resolved. The issueof vibrations was resolved when Nordic/PCL installed steel supports anddampeners. To resolve the rooftop terrace noise issue, operationguidelines were developed. These guidelines state that events on therooftop must end at 10:00 p.m., only a custom-designed system foramplified music or speech is allowed, and the convention center operatorwill be responsible for monitoring sound levels of all events held on therooftop terrace.

With regard to the rooftop terrace deck, the consultant engineer (RiderHunt) believed that there were two aspects that may have beenproblematic. The first was that the cracks might have developed becausethe concrete was cured improperly and are being worsened by movementin the deck. Second, given the large expanse of deck exposed to the sun,normal (and necessary) thermal movement of the deck may be restrained.As a result, Rider Hunt has tested the rooftop terrace deck slab. Aconsultant took core samples of the deck slab and sent them for analysisto evaluate the quality of the concrete and to determine whether it wascured properly. (If the concrete was not cured properly, it will behave ina manner inconsistent with its intended use.) A consultant also reviewedthe effect of thermal movement on the slab. With the testing conducted,the next step is for Nordic/PCL to develop a proposal to repair thecracks. According to SMG, Nordic/PCL was anxious to settle the issueby the end of 2001.

The convention center operator, SMG, should be evaluated to measurethe extent services provided fulfill contract objectives. On March 3,2001, SMG presented information to the Hawaii Tourism Authorityoutlining its performance and accomplishments in the following areas:(1) performance evaluation measures, (2) general operating objectivesand expectations under contract, and (3) performance of additionalresponsibilities.

All the goals and objectives on which the authority evaluated SMG inMarch 2001 were not included in its contract. In addition, SMG’scontract includes 14 objectives; however, the March 2001 evaluationused only 11 of these. As noted in our earlier audit, the conventioncenter operator’s goals and objectives should be included in its contract.In addition, the operator should be evaluated only on the objectivesoutlined in its contract.

In its December 2000 transition plan to the Legislature, the HawaiiTourism Authority reported that it would monitor the accomplishment ofthe convention center operator’s objectives through a quarterly reviewand evaluation system. However, the authority has not yet implemented

Systems to evaluateand monitor theconvention centeroperator needimprovements

35


this evaluation system. Instead, the authority has been meeting monthlywith the convention center operator to discuss various operational issues.Without a system in place to regularly monitor and evaluate theconvention center operator, the authority cannot be assured that theconvention center is achieving its objective of supporting Hawaii’seconomy.

Act 98, SLH 1999, extended the sunset date of the Convention CenterAuthority from June 30, 1999 to June 30, 2000. However, the act did notcontain provisions for continued oversight of the convention center afterthe sunset date. Specifically, it did not specify which state agency, ifany, should assume responsibility for the center after June 30, 2000. Werecommended that the Legislature determine which agency shouldassume oversight responsibilities for the convention center.

On June 30, 2000, the Hawaii Tourism Authority assumed responsibilityfor operating, managing, and maintaining the Hawai‘i ConventionCenter. However, this responsibility was not assigned legislatively.Responsibility was assigned executively when the governor placed thecenter under the control and management of the Hawaii TourismAuthority in May 2000 through Executive Order No. 3817. We reiterateour previous recommendation that the Legislature determine whichagency should be statutorily assigned oversight responsibilities for theconvention center.

The fundamental purpose of the Hawaii Tourism Authority is to improveHawaii’s economy through the marketing and promotion of tourism.Due to the significance of this purpose and with an annual budgetexceeding $60 million, the Legislature had justifiable concerns regardingthe authority’s contracting, organizational, personnel, and accountabilitypractices. Our audit revealed that the Legislature’s concerns were wellfounded.

We found that the authority lacks accountability. The authority hasfailed to implement a process to ensure its success in achieving itsmission, goals, and objectives. Without a comprehensive strategicplanning process, the authority is unable to manage for results.

The management problems at the Hawaii Tourism Authority are bothtroubling and alarming. Since its inception over three years ago, theauthority’s Board of Directors has failed to develop and implement aframework that ensures that state resources are accounted for and utilizedwisely and appropriately. Multi-million dollar contract payments aremade with little justification. Furthermore, with inadequate guidance

Oversightresponsibilities for theconvention center arenot legislativelyassigned

Conclusion

36


and support from the authority’s first chief executive officer (FishmanEnterprises), staff are not functioning as a well-balanced team and areconfused and frustrated.

Also troubling are the unresolved issues surrounding the Hawai‘iConvention Center. Although the center was formally accepted by theState in 1997, there are still outstanding construction issues. In addition,the authority has not implemented an adequate system to monitor andevaluate the convention center operator.

1. The Board of Directors of the Hawaii Tourism Authority should:

a. Ensure that it achieves its mission by implementing a process todevelop a comprehensive strategic plan.

b. Conduct thorough and formal annual evaluations of itself, theauthority, and its chief executive officer;

c. Comply with state laws governing public meetings;

d. Ensure that formal written policies and procedures to addresscontracting, personnel, and organizational management aredeveloped, implemented, and enforced;

e. Ensure that future contracts are properly documented andsupported, clearly tie contractors’ remuneration to measurabledeliverables, and eliminate questionable contract clauses;

f. Ensure that its organizational chart and staff positionsdescriptions are revised and updated, a training program isimplemented, and staff are evaluated regularly;

g. Continue to work with Nordic/PCL to resolve the issue of theconvention center’s rooftop terrace cracks as expeditiously aspossible; and

h. Implement a system to review and evaluate the convention centeroperator to ensure that it is meeting its goals and objectives andadhering to all applicable state laws, rules, and regulations.

2. The Legislature should clarify the duties and responsibilities of theHawaii Tourism Authority by:

a. Repealing Sections 201-91 to 201-99, HRS, and Chapter 203,HRS;

Recommendations

37


b. Amending Chapter 201B, HRS, to clearly assign the authoritywith the key duties and responsibilities formerly assigned to theOffice of Tourism; and

c. Determining which agency should assume oversightresponsibilities for the convention center and assigning thoseresponsibilities by statute.

38



39

Appendix A

Appendix AHawaii Tourism AuthorityAgreements: FY1998-99 to FY2001-02 (as of October 2001)

Source: Hawaii Tourism Authority. However, as discussed in the report, the accuracy and completeness of the contract listing arequestionable.

FY1998-99 # Contractor Project Description Amount 1 MEC Tourism Awareness and Education Programs $24,500 2 Dr. Sun Yat Sen Hawaii Foundation Legacies: Hawaii’s Contributor to the Life and Work of Dr. Sun Yat Sen 20,000 3 Hawaii Dragonboat Association 4th Annual AT&T Dragonboat Festival 20,000 4 JTB Hawaii, Inc. 1999 Honolulu Festival 20,000 5 Bishop Museum Annexation Exhibits and Programs 10,000 6 Haleiwa Arts Festival Celebrate the Haleiwa Arts Festival 10,000 7 Visitor Aloha Society of Hawaii (VASH) Establish an administration infrastructure for VASH 10,000 8 Fleet Street Graphics Plan, design, and fabricate the HI Design Expo 98 8,300 9 Waikiki Improvement Association Update report entitled, “Restoring Hawaiianness to Waikiki” 6,000 10 German-Hawaiian Friendship Club Report on the German Visitor Market 5,000 11 Lanai High School 1999 ZISMC National Youth Physical Fitness Championships 5,000 12 Hydrofest Hawaii, Inc. Sports Promotion 4,500

Total: $143,300 FY1999-00 # Contractor Project Description Amount 1 Visitor Aloha Society of Kauai (VASK) Provide aloha and assistance to visitors who have been victims of crime

and other adversities

$24,500 2 Piper, Kai’ulani Tourism Special Projects consultation 20,500 3 Bautista, Lynette D. Develop, review and edit HTA contracts, LOAs 20,000 4 Television Events and Marketing, Inc. dba

TEAM Unlimited Promotion video and supporting collateral for a legislative presentation and other uses for the calendar year

12,500

5 Cook, Lynn Planning, development, and implementation of statewide tourism awareness and education programs

10,000

6 The Kauai Heritage Center of Hawaiian Culture & the Arts

Ku I Ka Mana 10,000

7 Yap, Caroline Develop, review and edit HTA contracts, LOAs 8,000 8 TEAM Unlimited Production of a 30-second promotional spot for the Hawaii Pro Bowl 6,250 9 TEAM Unlimited Videotape the Liliuokalani Regatta 5,208 10 Hawaii Museums Association Design, layout, and printing of a Culture Passport 4,162 11 Moanalua High School Boosters 1999 Parade 3,000

Total: $124,120 FY2000-01 # Contractor Project Description Amount 1 TEAM Unlimited Payment to OCC Sports $175,000 2 Wong, Ruth Marie Services related to HTA’s Community Outreach Program 812

Total: $175,812

40

Appendix A


41

Appendix B

Appendix BHawaii Tourism AuthorityBusiness Destination Marketing Contracts: FY2001-02 (as of July 2001)


FY2001-02 # Contractor Project Description Amount 1 Five Mountain Medical Community Healing Island Initiative $110,000 2 Economic Development Alliance of Hawaii Hawaii Science and Technology Marketing and Business Attraction 100,000 3 Hawaii Island Economic Development

Board, Inc. Creating A Climate for Conferencing

75,000 4 Pacific Marketing Corporation PRIME 2001 75,000 5 Kauai Economic Development Board Kauai Science & Technology Marketing and Business Attraction 70,000 6 Maui Economic Development Board High Tech Marketing 60,000 7 Maui Economic Development Board Electronic Publishing; Web Design with Experts 10,000

Total: $500,000

42

Appendix B


43

Appendix C

Appendix CHawaii Tourism AuthorityEvents Contracts: FY1998-99 to FY2001-02 (as of October 2001)

FY1998-99 # Contractor Project Description Amount 1 Ehman Productions 1999 Aloha Classic Windsurfing Championship $125,000 2 Hawaii Sports, Inc. USA vs. Japan Pan Pacific Rugby match 50,000 3 Hawaiian Sailing Canoe Association 1999 Aston Race Series 50,000 4 Kaanapali Beach Resort Association Maui Music Festival 50,000 5 Makapuu Marine Sports, Inc. 1999 ITU Big Island World Cup Triathlon 50,000 6 International Swimming Hall of Fame National 25k Open Water Swimming 42,000 7 University of Hawaii 1999 Big Island Invitational Basketball Tournament 40,000 8 Bodyboard Productions, Inc. 2000 Extreme Bodyboard Series 35,000 9 Hawaii Canoe Racing Association HCRA State Championship Canoe Race 20,000 10 Xcel Hawaii, Inc. 16th Annual Xcel Pro Surf contest 15,000 Total: $477,000 FY1999-00 # Contractor Project Description Amount N/a TEAM Unlimited Events Marketing & Management Svcs (Amendment 1 to contract below) $1,985,000 1 TEAM Unlimited Events Marketing & Management Svcs 495,000 2 Aloha Week Hawaii, Inc. Aloha Festivals 300,000 3 Kawailoa Dev dba Poipu Bay Resort PGA Grand Slam 300,000 4 Amfac Prop Investment Corp Kaanapali Classic 200,000 5 Friends of Hawaii Charities Sony Hawaiian Open 200,000 6 Kapalua Land Co. Mercedes Championships 200,000 7 French Festival of Hawaii French Festival 175,000 8 Hawaii International Film Fest Hawaii International Film Festival 160,000 9 Bowl Games of Hawaii Aloha/Oahu Bowl Doubleheader 100,000 10 County of Maui Maui Invitational 100,000 11 Ehman Productions Aloha Classic Windsurfing Champ 100,000 12 Ray Schoenke & Associates, Inc. Who’s Got Game Skills Challenge 100,000 13 KEDB Hawaiian Paniolo Music Festival 75,000 14 Lanai Company Inc Lanai Pine Hawaii Pacific Open 75,000 15 Hawaii Sports Inc Pan Pacific Rugby USA vs Japan 50,000 16 Hawaiian Sailing Assoc Sailing Canoe Race Series 50,000 17 Kaanapali Beach Resort Assoc Maui Music Festival 50,000 18 Kauai EDB Savor the Flavors of Kauai 50,000 19 Makapu’u Marine Sports ITU Big Island Triathlon World Cup 50,000 20 Maui Writers Foundation Maui Writers Conference 50,000 21 Navy HI MWR Navy Hydrofest 50,000 22 Youth for Environmental Service Millenn. Young Peoples’ Congress 50,000 23 Int’l Swimming Hall of Fame USA 25K Nat’l Open & Pre World Open Water Champ 42,000 24 UH-Hilo Big Island Invitational Basketball 40,000 25 Chef Events, LLC Hawaii Food Exposition 25,000 26 Kapalua Wine Society Kapalua Wine & Food Symposium 25,000 27 Lahaina Town Action Comm Taste of Lahaina 20,000

Total: $5,117,000

44

Appendix C


Calendar Year 2000 # Contractor Project Description Amount 1 National Football League NFL Pro Bowl $3,500,000 2 Sports Producers Hawaii, Inc. Senior Skins 400,000 3 Kauai Economic Development Board NFL Quarterback Challenge 350,000 4 Not indicated in contract listing Honolulu Festival 150,000 5 Not indicated in contract listing Hokulea 25th Anniversary Events 100,000 6 Not indicated in contract listing Maui Marathon 25,000

Total: $4,525,000 Calendar Year 2001 # Contractor Project Description Amount 1 National Football League NFL Pro Bowl $4,124,299 2 Kauai Economic Development Board NFL Quarterback Challenge 400,000 3 Not indicated in contract listing Maui Invitational 100,000 4 Not indicated in contract listing Maui Jim Hawaii Marlin Tournament Series 100,000 5 Not indicated in contract listing Hawaii World Billfish Tournament 80,000 6 Not indicated in contract listing Ironman Triathlon World Championships 75,000 7 Not indicated in contract listing Vans Triple Crown of Surfing 75,000 8 Not indicated in contract listing Pontiac America Team Cup-USA Gymnastics 70,000 9 Not indicated in contract listing Red Bull King of the Air/Kitesurfing 60,000 10 Not indicated in contract listing Aloha Classic 50,000 11 Not indicated in contract listing Maui Marathon 50,000 12 Not indicated in contract listing Women’s World Bodyboarding Championship 40,000 13 Not indicated in contract listing Hawaiian International Billfish Tournament 30,000 14 Not indicated in contract listing World Cliff Diving Championships 30,000 15 Not indicated in contract listing Xcel Surf Pro Contest 25,000

Total: $5,309,299

45

Appendix D

Appendix DHawaii Tourism AuthorityProduct Development Contracts: FY1998-99 to FY2001-02 (as of October 2001)

FY1998-99 # Contractor Project Description Amount 1 County of Maui Maui Invitational Tournament $100,000 2 Lanai Company, Inc. Lanai Pine Hawaii Pacific Open Clay Shoot 75,000 3 Hawaii Island Economic Development

Board Boat Days Hilo and Kona Celebrations

45,000 4 Hawaii Bicycling League 1999 Century Bike Ride 40,000 5 Kauai Economic Development Board West Kauai Visitor Center and Cultural project 40,000 6 Alternative Structures International, dba

Kahumana Community Center Plan, develop and implement the Waianae Cultural Center

30,000 7 Maui Community Arts and Cultural Center 1999-2000 Ho’onanea Project 25,000 8 Hawaii Island Economic Development

Board Paniolo Style – Hawaii’s Cowboy Heritage

25,000 9 Hawaii Theatre Center “The Home of Great Hawaiian Music” 25,000 10 Pulama Ia Kona Heritage Preservation

Council Plan, develop and stage the Holualoa Heritage Corridor project

25,000 11 Lahaina Town Action Committee Boat Day Greetings in Hawaii 25,000 12 Pete Newell Big Man Camp Hawaii, Ltd Hawaii Basketball Training Camp 20,000 13 Hawaii Island Economic Development

Board Big Island Cultural Corridor

20,000 14 Volcano Art Center, Inc. Volcano Wilderness Runs 20,000 15 Kona Historical Society Kona Heritage Stores project 20,000 16 Friends of Mokulea Develop Moku’ula project 20,000 17 Big Island Resource Conservation Council Identify and promote trails in Puna 20,000 18 County of Kauai, Office of Economic

Development Lihue Airport Entertainment project

19,000 19 World Music Association Plan, develop and stage the Hawaii International Jazz Festival 15,000 20 Waimea Preservation Association, dba

Waimea Main St. Waimea Community Visitor Attraction program

15,000 21 West Kauai Main Street HMS Bark Endeavor 15,000 22 Big Island Resource Conservation Council Plantation Living History project 15,000 23 Koloa Plantation Days, Inc. Koloa Plantation Days Celebration 10,000 24 Kori, Inc. dba Aloha Hula Supply 1999 World Invitational Hula Festival 10,000 25 Hui O Laka – Koke’e Natural History

Museum Emalani Festival

10,000 26 Big Island International Marathon

Association 1999 3rd Annual 26.2 Marathon & Ekiden Relay Race and Charity Walk

10,000 27 Hawaii County Economic Opportunity

Council Rainbow Falls project

10,000 28 Hawaiian Chinese Multicultural Museum &

Archives Chinatown Historical Tour

10,000 29 Hawaii Services on Deafness 1999 Sign Language Festival 5,000 30 East Hawaii Cultural Council 10th Annual Big Island Slack Key Festival 5,000 31 The Contemporary Museum Arts with the Aloha Cultural Tourism Brochure 5,000 32 Na Kalai Wa’a O Kauai No Ka Keiki Concert 4,000 33 Japanese Cultural Society of Hawaii Kauai Japanese Cultural Festival 2,000 34 Hawaiian Super Prix, LLC Championship Auto Racing 0

Total: $735,000

46

Appendix D

FY1999-00 # Contractor Project Description Amount 1 Economic Dev Alliance, Hawaii Film Marketing Programs $200,000 2 dba Destination Hilo Edu Tourism Consortium 180,000 3 Kauai EDB Science & Tech Mktg Program 175,000 4 Native Hawn Tsm & Hosp Assn. Re-Enchantment of Waikiki 150,000 5 Kauai Economic Development Bd. Kauai: An Island of Discovery 145,000 6 Tom Coffman Multimedia Inc. Hawaiian Forest TV Documentary 125,000 7 Economic Dev Alliance, Hawaii State Freshwater Fishing Program 100,000 8 USS Missouri Memorial Assn. Battleship MO Memorial Edu Prgm. 100,000 9 Five Mtn Medical Community The Healing Island Initiative 90,000 10 Economic Dev Alliance, Hawaii State Natural Resources Display 75,000 11 PICHTR APEC Telecom Meeting 75,000 12 Economic Dev Alliance, Hawaii Science & Tech Business Dev 65,000 13 Kauai Economic Development Bd Kauai Products Catalog Development 65,000 14 Maui Econ Dev Board S&T Meeting Planners Conf. 60,000 15 County of Maui OED USC School of Cinema Seminar 55,000 16 Economic Dev Alliance, Hawaii High Tech Entertainment Bus Dev 55,000 17 Hawaiian Wildlife Tours Promo of Wilderness Trail Ecotsm 53,000 18 Edith Kanakaole Foundation World Indigenous Peoples Conf 50,000 19 Friends of Youth for Environmental

Service Services related to the Millennium Young People Congress

50,000 20 Kauai Economic Development Showcase Hawaii Products 50,000 21 Kona Historical Society Kona Coffee Living History 50,000 22 Hawaii Island EDB Hawaii Island of Adventure/Int’l Festival of the Pacific 45,000 23 HIEDB Hilo and Kona Boat Days 45,000 24 The Friends of ‘Iolani Palace Iolani Palace 45,000 25 Kauai Business Assistance Visitor Edu Tsm Center @ KCC 42,000 26 Hawaii Bicycling League Century Bike Ride 40,000 27 Hon Jpnse Chamber of Com Edu Tourism Mission 40,000 28 KEDB Cultural Programs 40,000 29 Bodyboard Productions 3rd Ann Extreme Bodyboard Series 35,000 30 Bright Light Marketing Group, Inc. Waikiki Walk of Honor 35,000 31 West Kauai Com Dev Corp Waimea Sugar Mill Marketplace 35,000 32 Alternative Structures Int’l dba Kahumana

Community Ctr Waianae Cultural Center

30,000 33 Hawaii Nature Center A Walk in the Rainforest 30,000 34 Bishop Museum Ho ‘Ike ‘Ike Cultural and Ed Tour 25,000 35 Child & Family Services Training for Japan’s Elder Care 25,000 36 Hawaii Island EDB Techno Tourism Collateral & Inv 25,000 37 Hawaii Theatre Center The Home of Great Hawaiian Music 25,000 38 HIEDB Paniolo Style – Hawaii’s Cowboys Heritage 25,000 39 Honolulu Academy of Arts Encounters With Paradise 25,000 40 Kapalua Wine Society 18th Annual Kapalua Food and Wine Symposium 25,000 41 Lahaina Town Action Committee Boat Day Greetings in Lahaina 25,000 42 Maui Arts & Cultural Center Hoonanea Project 25,000 43 Pulama Ia Kona Holualoa Heritage Stores 25,000 44 Carole Kai Charities, Inc. Great Aloha Run Festival 24,950 45 Aloha Boat Days/HI Maritime Honolulu Harbor Boat Days 24,000 46 Hawaii Ec. Dev. Board Hilo and Kona Boat Day Project 24,000 47 Kauai County – Office of Ec. Dev. Kauai’s Aloha Greetings Project 24,000 48 Kauai Ec. Dev. Board Kauai Kupuna Cultural Program & Festival 24,000 49 West Kauai Bus. & Prof. Assn. Waimea Town Celebration 24,000 50 Kauai Rural Health Assn Kauai Rural Health & Wellness Festival 21,000 51 Big Island RC&D Puna Trails Organization And Interpretation Project 20,000 52 Friends of Mokuula Mokuula Project 20,000 53 Hawaiian Canoe Race Hawaii Canoe State Championship 20,000

47

Appendix D

# Contractor Project Description Amount 54 HIEDB Big Island Cultural Corridor 20,000 55 Honolulu Symphony Waikiki Shell Concerts 20,000 56 Kapalua Nature Society Earth Maui Nature Summit 20,000 57 Kauai Chamber of Commerce Kauai Net Expo 20,000 58 Kona Historical Society Kona Heritage Stores 20,000 59 Lahaina Town Action Committee In Celebration of Canoes 20,000 60 Laupahoehoe Train Museum Caboose Display Project 20,000 61 Maui Sports Foundation Maui Race Series 20,000 62 Pete Newell Ltd. Big Man Camp Hawaii 20,000 63 Poipu Beach Resort Association Koloa-Poipu Heritage Program 20,000 64 UH, Hilo, Athletics Dept. Taylor-Made/Waikoloa Intercollegiate Golf Tournament 20,000 65 Volcano Art Center Volcano Wilderness Run 20,000 66 Office of Economic Development Lihue Airport Entertainment Project 19,000 67 Maui Econ Dev Board S&T Meetings & Convention Prgm 16,000 68 Big Island RC&D Plantation Living History Project 15,000 69 Hui Kalo ‘O Waialua Waialua Taro Festival 15,000 70 Kauai Mokihana Festival 1999 Kauai Mokihana Festival 15,000 71 Prince Albert Foundation Prince Albert Music Festival 15,000 72 Waimea Main Street Waimea Community Visitor Attraction Program 15,000 73 West Kauai Main Street HM Bark Endeavor Festival 15,000 74 World Music Association Hawaii International Jazz Festival 15,000 75 Xcel Hawaii Inc Xcel Pro Surf Contest 15,000 76 Central Maui Destination Assn Kahului Harbor Greeting Program 12,000 77 Lahaina Town Action Committee Lahaina Boat Greeting 12,000 78 Na Hoaloha ‘Ainahou Volcanoes National Park Seminar 12,000 79 Big Island Int’l Mar Assoc. Big Isle International Marathon 10,000 80 Hawaii Ecotourism Assn. Hawaii Pono 10,000 81 Hawaiian Chinese Multicultural Museum Chinatown Historical Tour 10,000 82 HI County Econ Opp Council Rainbow Junction Cultural Program 10,000 83 Hui O Laka Emalani Festival 10,000 84 Ka Molokai Makahiki Ka Molokai Makahiki 10,000 85 Kauai Tahiti Fete Kauai Tahiti Fete 10,000 86 Koloa Plantation Days, Inc. Koloa Plantation Days Celebration 10,000 87 Kori Inc. dba Aloha Hula Supply World Invitational Hula Festival 10,000 88 Maui Econ Dev Board S&T Meeting Planners Guide 10,000 89 Molokai Visitors Association Molokai Ka Hula Piko 10,000 90 Temari Seasons of Aloha 10,000 91 UH College of Tropical Ag Coffee Cherry Blossom Festival 10,000 92 Aikane O Halau Hula O Keola Aliikekai Aloha on the Go – The Japan Train Stop Show 5,000 93 Contemporary Museum Arts With Aloha Cultural Tourism Brochure 5,000 94 East Hawaii Cultural Council Big Island Slack Key Guitar Festival 5,000 95 Garden Island Arts Council E Kanikapila Kakou 5,000 96 Hawaii Services on Deafness Sign Language Festival ‘99 5,000 97 HI Island Space Expl Society Hawaii Space Tourism Jump Start 5,000 98 Kapaa Business Association Coconut Festival 5,000 99 No Shore Body Surf Pipeline Body Surfing Classic 5,000 100 Na Ohana Kakoo Olelo Makuahine No Na Keiki Concert 4,000 101 Japanese Cultural Society of Kauai 14th Annual Kauai Japanese Cultural Festival 2,000

Total: $3,512,950

48

Appendix D

FY2000-01 # Contractor Project Description Amount 1 Kauai Economic Development Board Techno Tourism Marketing Program $175,000 2 Hawaii International Film Festival Hawaii International Film Festival 2000 160,000 3 Bishop Museum Hilton Hawaiian Village’s Hawaiian Cultural Center 150,000 4 Hawaii Island Economic Development

Board Agricultural Tourism

150,000 5 Hilo Hawaii Visitor Industry Assn., dba

Destination Hilo Edu-Tourism Consortium

150,000 6 Kauai Economic Development Board Kauai – Hawaii’s Island of Discovery 145,000 7 Five Mountain Medical Community, Inc. The Healing Island Initiative 140,000 8 Maui Economic Development Board Meetings Attraction 125,000 9 Native Hawaiian Tourism & Hospitality

Association The Institute of Hospitality

75,000 10 Helping Hands Hawaii Art in Paradise 50,000 11 Jasper Properties, LLC-dba Kauai

Products Fair Kauai Products Fair

50,000 12 Kona Historical Society Kona History Orientation Exhibit 50,000 13 Lahaina Town Action Committee In Celebration of Canoes 50,000 14 Westside Sporting Clays Westside Sporting Clays Skins Game 50,000 15 Maui Economic Development Board Maui Space Surveillance Site (MSSS) Visitor Tours 35,000 16 West Kauai Business & Professional

Association Waimea Town Celebration

30,000 17 East Maui Taro Festival East Maui Taro Festival – World Taro Festival 25,000 18 Hawaii Bicycling League AIG Century Ride 25,000 19 Hawaii Theatre Center Decades – Hawaiian Style 25,000 20 Hilton Waikoloa Village The Great Waikoloa Food, Wine and Music Festival 25,000 21 Ho’opulapula Haraguchi Rice Mill Haraguchi Rice Mill Visitor Center and Gift Shop 25,000 22 Honolulu Academy of Arts Encounters with Paradise II: Hawaiian Exhibitions 25,000 23 Japanese Chamber of Commerce and

Industry of Hawaii International Festival of the Pacific

25,000 24 Kapalua Land Company, Ltd. Kapalua Food and Wine Festival 25,000 25 Kauai Taro Growers Association Kauai Taro Festival 25,000 26 Lahaina Town Action Committee A Taste of Lahaina & the Best of Island Music 25,000 27 Moanalua Gardens Foundation MGF’s Prince Lot Hula Festival XXIII 25,000 28 Kauai Mokihana Festival Kauai Mokihana Festival 2000 23,000 29 Koloa Plantation Days, Inc. Koloa Plantation Days Celebration 23,000 30 Maui Pineapple Company Ltd. – Honolua

Plantation Maui Pineapple Plantation Tour Marketing

23,000 31 Hui No’eau Visual Arts Center The Color of Paradise 22,000 32 Bishop Museum Family Sunday 20,000 33 Carole Kai Charities, Inc. dba Great Aloha

Run Great Aloha Run

20,000 34 County of Maui, Office of Economic

Development 8th Annual Lanai Pineapple Festival

20,000 35 Hawaii Women’s Business Center Health & Wellness Tourism: Making it Happen 20,000 36 Hawaiian Sailing Canoe Association 2000 Aston Race Series Sports Tourism Proposal 20,000 37 Lyman House Memorial Museum Hands on Hawaii – The Earth Heritage Gallery 20,000 38 Maui AIDS Foundation Rainbow Hawaii 20,000 39 Maui Arts & Cultural Center 2000-2001 Ho’onanea Hawaiian Music Series 20,000 40 University of Hawaii – Hilo Athletics Taylor Made/Waikoloa Intercollegiate Golf Tournament 20,000 41 World Invitational Hula Festival/E Ho‘i Mai

i ka Piko Hula World Invitational Hula Festival

20,000 42 Maui Agricultural Foundation, Inc. 2001 Ulupalakua Thing! 19,000 43 Ka Molokai Makahiki, Inc. Ka Molokai Makahiki, ‘Iwakalua 17,000 44 Hui o Laka – Koke’e Natural History

Museum Eo E Emalani I Alakai Festival

16,000 45 Downtown Improvement Association Hilo Mainstreet Activity and Information System 15,000

49

Appendix D

# Contractor Project Description Amount 46 Kauai Children’s Discovery Museum Savor the Flavors of Kauai 15,000 47 Roy Sakuma Productions, Inc. 30th Annual Ukulele Festival 15,000 48 Waimea Preservation Association Waimea Visitor Attraction Program 15,000 49 West Kauai Business & Professional

Association Waimea Main Street Marketing

15,000 50 Pua Tahiti Productions Tahiti Fete of Hilo 12,000 51 Big Island International Marathon

Association Big Island International Marathon


Development Historic Wailuku Town, Cultural Street Festivals

10,000 53 East Hawaii Cultural Council 11th Annual Big Island Slack Key Guitar Festival 10,000 54 Haleiwa Arts Festival Haleiwa Arts Festival Summer Event 10,000 55 Hanapepe Economic Alliance, Inc. Cultural Tourism Program 10,000 56 Hawaii Theatre Center The Home of Great Hawaiian Music 10,000 57 Honolulu Japanese Chamber of

Commerce Edu-Tourism – Business Mission

10,000 58 King Kamehameha Celebration

Commission 128th King Kamehameha Celebration

10,000 59 LoveStar Corporation John Manjiro Izanai Yosakoi Festival of the Future 10,000 60 Maui Taiko Maui Taiko 2001 Aloha Tour 10,000 61 University of Hawaii College of Tropical

Agriculture & Human Resources Kona Spring Blossom Festival

10,000

62 World Music Association Hawaii International Jazz Festival 10,000 63 Hawaii Maritime Center (Bishop Museum

is contracting entity) Honolulu Harbor Festival

8,000

64 Volcano Art Center, Inc. Web-Based Marketing Development 8,000 65 He Kula Na Mea Hawaii Hula Fest 2000 7,000 66 Hawaii Services on Deafness Hawaii Sign Language Festival Advance Promo 2001 5,000 67 Kapaa Business Association Coconut Festival 5,000

Total: $2,443,000 FY2001-02 # Contractor Project Description Amount 1 County of Kauai – Office of Economic

Development Kauai Cooperative Festivals Grant

$100,000 2 UH-Hilo (College of Continuing Education) Expanding EduTourism in Hawaii 100,000 3 Hawaii County Economic Opportunity

Council The Rainbow Falls Connection

75,000 4 Kauai Economic Development Board Kauai Visitor Center Cultural Program 75,000 5 Lahaina Town Action Committee In Celebration of Canoes 50,000 6 Japanese Cultural Center of Hawaii Japan-Hawaii School Visit Program 40,000 7 Pacific Islanders in Communications Holo Mai Pele National Outreach 30,000 8 East Maui Taro Festival, Inc. 10th Annual East-Maui Taro Festival/World Taro Festival 25,000 9 Friends of Waipahu dba Hawaii’s

Plantation Village Taste of Waipahu: Plantation Culture Lives!

25,000 10 Hilton Waikaloa Village Dolphin Days/Great Waikaloa 25,000 11 Jasper Properties, LLC – dba Kauai

Products Fair Kauai Products Fair

25,000 12 Kapalua Land Company Kapalua Wine & Food Festival 25,000 13 Lahaina Town Action Committee A Taste of Lahaina 25,000 14 Polynesian Voyaging Society Ho‘oilina Mau – Ho‘olaule‘a 25,000 15 The Ritz-Carlton Kapalua The Celebration of the Arts 25,000 16 West Kauai Business & Professional

Association Year 2002 Waimea Town Celebration

25,000

50

Appendix D


# Contractor Project Description Amount 17 Hawaii Island Economic Development

Board, Inc Lili’uokalani Festival and Haw’n Music Conference

20,000 18 Hawaii Island Economic Development

Board, Inc Ag Tourism Council

20,000 19 Hawaiian Sailing Canoe Association 2001 Aston Race Series 20,000 20 Honolulu Academy of Arts Na Mele Hawaii Concert Series 20,000 21 Hui No’eau DBA Hui No’eau Visual Arts

Center The Color of Paradise

20,000 22 Japanese Chamber of Commerce &

Industry of Hawaii 41st International Festival of the Pacific

20,000 23 Kapa’a Business Association 5th Annual Coconut Festival 20,000 24 Life Foundation Paradise Ride Hawaii 20,000 25 Lyman House Memorial Museum Earth Heritage Gallery – On the Road 20,000 26 Maui Agriculture Foundation 2002 Maui Agricultural Trade Show & Sampling 20,000 27 Moanalua Gardens, Inc. 24th Annual Prince Lot Hula Festival 20,000 28 World Invitational Hula Festival World Invitational Hula Festival 20,000 29 Bishop Museum Traditional Arts Outreach Program 15,000 30 Hamakua Music Festival, Inc. Website Creation/Marketing Expansion 15,000 31 Hawaii Ecotourism Association Ke Ala Moa’e – The Trade Wind Trail 15,000 32 Hawaii Island Economic Development

Board, Inc. Volcano Cultural Corridor

15,000 33 Honolulu Japanese Chamber of

Commerce Marketing for Education Tourism

15,000 34 Kona Historical Society Kona Coffee Living History Farm Ed. Outreach Program 15,000 35 Kona Historical Society Kona Heritage Ranch – Traditional Cattle Walls of Kona 15,000 36 Nui o Laka (Koke’e Natural History

Museum) E o Emalani I Alakai – The Emalani Festival

15,000 37 Matrix Media of HI Hawaii School Excursions Insert 12,000 38 County of Maui, Office of Economic

Development Ka Leo Hano Awards


Development Historic Wailuku Town, Exploring Historic Wailuku, Audio Tape

10,000 40 East Hawaii Cultural Council Big Island Slack Key Guitar Program 10,000 41 Haleiwa Arts Festival Haleiwa Arts Festival 4th Annual Summer Event 10,000 42 Hawaii Youth Symphony Association Pacific Music Institute 2001 10,000 43 Lovestar Corporation John Manjiro Izanai Yosakoi Festival of the Future 10,000 44 Malama Ia Kona Heritage Preservation

Council Kona Heritage Corridor

10,000 45 Maui Community Arts & Cultural Center

dba Maui Arts & Cultural Center 2002 Kiho’alu Slack Key Guitar Festival at MACC

10,000 46 Maui Community Arts & Cultural Center

dba Maui Arts & Cultural Center Ho’onanea & Hawaii’s Cultures at the MACC

10,000 47 Native Hawaiian Tourism & Hospitality

Association Hawaii Theatre “Hana Hou!” Hawaiian Music Series

10,000 48 West Kauai Business & Professional

Association Waimea Main Street Marketing

10,000 49 World Music Association Hawaii International Jazz Festival 10,000 50 Big Island Sustainable Communities

Association HCRC Hamakua Web Site Project

5,000 51 Mainstream Pahoa, Inc. The Puna Renewable Energy Fair 5,000

Total: $1,197,000

51

Appendix E

Appendix EHawaii Tourism AuthorityOther Contracts: FY1998-99 to FY2001-02 (as of October 2001)

FY1998-99 # Contractor Project Description Amount 1 Hawaii Visitors and Convention Bureau Tourism Marketing and Promotion $49,613,347 2 SMG Management and operations services of the Hawaii Convention Center 12,227,147 3 Fishman Enterprises Management of the Hawaii Tourism Authority 546,000 4 Rider Hunt Ltd. Construction Management Services for the Hawaii Convention Center 150,000 5 Hokama, Isaac K. Millennium Commission staff 110,000 6 Aloha Stadium Aloha Bowl Game/Oahu Bowl Game 45,000 7 Higa, Amy Y. Millennium Commission staff 30,000 8 City and County of Honolulu Expo 1998 to Portugal 25,000 9 Bowl Games of Hawaii Aloha Bowl Game/Oahu Bowl Game 0

Total: $62,746,494 FY1999-00 # Contractor Project Description Amount 1 Hawaii Visitors Convention Bureau Integrated Marketing $39,000,000 2 Hawaii Visitors Convention Bureau Meetings, Conventions, and Incentives 5,200,000 3 Hawaii Millennium Commission Year-long events in 2000 related to the Millennium 750,000 4 Robert M. Kaya Builders, Inc. Furnishing and Installation of Cool Air in the Ballroom Pre-function Area

for the Hawaii Convention Center

432,355 5 Wilson Okamoto & Associates, Inc. Kalakaua Avenue Sidewalk Improvement project 75,000 6 Inacom Corp., dba Inacom Information

Systems Network, internet and email support service, maintenance

64,447 7 Visitor Aloha Society of Hawaii (VASH) Assisting visitors victimized by crime and other adversities 52,500 8 Bronster, Crabtree and Hoshibata Consultant services for the Pro Bowl and the Quarterback Challenge 24,000 9 Cachola, Julie-Ann For services related to HTA’s activities in Product Development, Cultural

Tourism/Community-based Tourism and Sports/Events

14,400 Total: $45,612,702

FY2000-01 # Contractor Project Description Amount 1 PGA Golf Events $1,800,000 2 TEAM Unlimited, Inc. Events Management 750,000 3 City and County of Honolulu To protect and serve all residents and visitors in the City and County of

Honolulu, especially residents and visitors attending meetings, events or conventions at the Hawaii Convention Center

525,000 4 HTDC Statewide mktg. Plan to attract science and tech business to Hawaii 250,000 5 Visitor Aloha Society of Hawaii (VASH) Victimized visitor assistance 165,000 6 EDAH Hawaiian Paniolo Festival 145,000 7 University of Hawaii Registration and Fiscal administrative services for the ADB Conference 110,000 8 Pacific Marketing Corporation PRIME 2000 100,000 9 Pacific Telecommunication Council Planet PTC 75,000 10 Kauai Economic Development Board Time Share Proposal 60,000 11 D&V Marketing, Inc. Perimeter and Interior Security around HCC during ADB 50,040 12 Maui Economic Development 2001 Maui Film Festival @ Wailea 50,000 13 Pacific Arts Foundation Waikiki-In the Wake of Dreams 50,000 14 Royal Guard Security, Inc. Perimeter Security around HCC during ADB 47,874 15 Aton, Robert Doug Security Consultant for the ADB Conference 40,950 16 Wackenhut Corporation Security examination of all persons and belongings of attendees of the

ADB Conference

37,791

52

Appendix E


# Contractor Project Description Amount 17 Visitor Aloha Society of Kauai (VASK) Victimized visitor assistance 35,000 18 Lahaina Town Action Committee Lahaina Boat Day Greetings 25,000 19 Economic Dev Alliance, Hawaii Maui Meeting Visions 24,000 20 HI State Consortium for Integrative

Healthcare Straub Foundation

24,000 21 Hawaii Internet Emporium Design, development, hosting and maintenance of a new website for the

Asian Development Bank Conference

20,156 22 Hawaii Alliance of Healing Arts Hawaii Alliance of Healing Arts 20,000 23 National Association of State Venture

Funds, Inc., dba National Association of Seed and Venture Funds

National Association of Seed and Venture Funds Conference

20,000 24 Zhongshan Association Zhongshan Association Conference 20,000 25 HI State Assn. Of Counties 2001 Western Interstate Region Conference 15,000 26 Lewitz and Associates Supervision and execution of all work necessary to complete electrical

and sound system work at the Hawaii Convention Center

14,500 27 Cook, Lynn Implementation of Tourism Awareness campaign 12,000 28 Glauberman, Stuart Public relations support at the ADB Conference 5,000 29 Matsuda, Milton Administrative and management support at the ADB Conference 3,000 30 Shon, James T. Administrative and management support at the ADB Conference 3,000 31 Bonomi, Edward L. Administrative and management support at the ADB conference 2,000 32 Cook, Lynn Implementation Awareness campaign (supplemental agreement no.1) 1,800 33 Rios, Jessica Administrative and executive assistance for the ADB Conference 1,600

Total: $4,502,711

53

Comments onAgencyResponses

Responses of the Affected Agencies

We transmitted drafts of this report to the chair of the Board of Directorsof the Hawaii Tourism Authority, the authority’s executive director, andthe Department of Business, Economic Development and Tourism onJanuary 24, 2002. A copy of the transmittal letter to the board chair isincluded as Attachment 1. Similar letters were sent to the executivedirector and the Department of Business, Economic Development andTourism. The responses of the board chair, the executive director, andthe Department of Business, Economic Development and Tourism areincluded as Attachments 2, 3, and 4, respectively.

In his response, the board chair accepted and agreed with ourrecommendations. He observed that the audit “provides a good templatefor the [authority’s] board to embark on its current challenge of finding anew executive director who can in fact, address all of the points raised inthe audit and in so doing, improve the [authority’s] operations and makeus a better government agency.”

The board’s response also included a letter and opinion from attorneyMax W.J. Graham, Jr. regarding parts of our draft report that hedescribes as appearing to implicate his client, a board member, in allegedviolations of the state ethics code. On page 5 of his opinion, Mr.Graham claims apparent factual inaccuracies in our draft report. Westand by the facts that we presented. The 2001 NFL QuarterbackChallenge contract was indeed signed after the event was held onFebruary 8, 2001. Although the contract was dated February 1, 2001, thecontractor did not sign the contract until February 12, 2001 and theauthority until March 15, 2001. Mr. Graham also claims that a $253,200product development proposal existed. However, the authority was ableto provide us only with evidence of a $75,000 proposal. Mr. Grahamalso disagrees with the presentation of facts in our Exhibit 2.1.However, the exhibit is correct as to the timeline of events.

Mr. Graham’s opinion also concludes that the authority board member inquestion did not have a controlling interest in the nonprofit organizationthat was awarded several contracts by the authority. However, he doesnot explain the basis for his conclusion.

In his response, the current executive director of the authority stated thatthe authority looks forward to implementing our recommendationswithout reservations, except our recommendation that the board clearlytie contractors’ remuneration to measurable deliverables. However, westand by our recommendation. Due to the significance of the authority’s

54

contracts with the Hawaii Visitors and Convention Bureau to market andpromote Hawaii, and with single payments ranging from $625,000 to $4million, the authority needs to be able to demonstrate that the moneysspent are used efficiently and effectively, by linking remuneration tomeasurable deliverables. The executive director also noted that minutesfor six executive meetings of the board were maintained in electronicform and handwritten minutes were maintained for 15 executivemeetings. However, in response to a direct request to review allexecutive meeting minutes, the authority provided our office only withhandwritten minutes for nine executive meetings.

The director of the Department of Business, Economic Development andTourism (DBEDT) commented that he believes our report will help thenew chief executive officer to better manage the authority. The DBEDTdirector also discusses issues relating to the measurement of theauthority’s performance.

All of the above parties commenting on the draft provided additionalinformation and viewpoints.

Our final report contains a few minor editorial changes for purposes ofaccuracy or style.

1

MARION M. HIGAState Auditor

STATE OF HAWAII

OFFICE OF THE AUDITOR

465 So King Street, Room 500

Honolulu, Hawaii 96813-2917(808) 587-0800

FAX: (808) 587-0830

~

January 24, 2002

copy

Mr. Roy Tokujo, ChairBoard of DirectorsHawaii Tourism AuthorityHawaii Convention Center1801 Kalakaua Avenue, R-LevelHonolulu, Hawaii 96815

Dear Mr. Tokujo'

Enclosed for your infoffi1ation are 13 copies, numbered 6 to 18 of our draft report, ManagementAudit of the Hawaii Tourism Authority. We ask that you telephone us by Monday, January 28,2002, on whether or not you intend to comment on our recommendations. Please distribute thecopies to the members of the board. If you wish your comments to be included in the report,please submit them no later than Thursday, January 31, 2002.

The Executive Director of the Hawaii Touri:)m Authority, Department of Business, EconomicDevelopment and Tourism, Governor, and presiding officers of the two houses of the Legislaturehave also been provided copies of this draft report.

Since this report is not in final form and changes may be made to it, access to the report shouldbe restricted to those assisting you in preparing your response. Public release of the report willbe made solely by our office and only after the report is published in its final form.

Sincerely,

~~~

Marion M. RigaState Auditor

Enclosures

55

2

BENJAMIN J. CAYETANOGovemor

RICHARD L. HUMPHREYS

Hawaii Convention Center, 1801 Kalakaua Avenue, Honolulu, Hawaii 96815Website: www.hawaii.gov/tourism

Telephone:Fax:

(808) 973-2255

(808) 973-2253

February 1, 2002

RECEIVED

FEDThe Honorable Marion HigaState AuditorOffice of the Auditor, Room 500Honolulu, Hawaii 96813

OFC. OF THE AUD,TOR

STATE OF HAWAII

Dear Ms. Higa:

Re: Draft Report of the Management of the Hawaii Tourism Authority

We accept the auditor's recommendations and agree with the recommendations madetherein. Legislation has already been introduced regarding statutory alignment of the HawaiiConvention Center under the Hawaii Tourism Authority and amending the statutes relating to theOffice of Tourism.

Although we have just revised our tourism strategic plan (Ke Kumu), we will re-examineour plan in light of the suggestions of the Legislative Audit report. The convention centerconstruction flaws have been addressed, and a final settlement proposal is being negotiated.Internal contract processing is being reviewed and the board may consider the possibility ofcontracting with an outside accounting firm to consider the establishment of internal policies andprocedures to address contracting, personnel and organization management.

We are glad the Audit noted that other states face the same dilemma with measurement ofsuccess standards. However, the Audit also conceded that even other jurisdictions have not beenable to yet come up with something better. It is our desire to develop measurements that will bea leader in the field of measuring marketing success for tourism. We have an ideal situationsince all visitors arrive and depart primarily by air. It is an ideal situation for conducting surveysand gaining an advantage in analysis data.

We also offer the following comments to your findings:

The board used its best efforts to comply with the "basic functions of the board" byapproving and revising a long term strategic direction; oversaw the direction of theorganization, approved the appropriate budgets for staffing; worked closely with theexecutive director and staff through its board committee structure; the various criteria

.

56

The Honorable Marion HigaState AuditorOffice of the AuditorFebruary 1, 2002Page Two

.

.

.

provided in the request for proposals for the program development, events, andfestivals tourism programs provided consistent policies for the expenditure of funds;relied upon the Department of the Attorney General to ensure compliance with alllegal and ethical responsibilities; managed our financial resources by adhering to ourapproved budgets; and, sought to continuously analyze its performance throughfrequent board meetings open to the public and initiating community meetings oneach island to solicit community input on our tourism strategic plan.Our tourism strategic plan provided goals that were based on reliable measuresbeyond visitor arrivals.The board sought more community involvement in the strategic planning process thanin any research project in the history of the State. Two separate independentcontractors compiled findings to avoid the board from being accused of "fudging" thedata to support pre-conceived visions of where we thought tourism should go.There is no industry based standard for measuring a tourism marketing plan. Nomeasuring tool can compare historical information without footnotes noting disastersand changing economic conditions. There is no accurate analysis that can determinetrue intent to travel without massive research that takes years to track.The Department of the Attorney General drafted the contract and authorized thehiring of Fishman Enterprises, Inc. as an independent contractor. The board had nocontrol over the contract process which was submitted to the board for approval afterit was approved and recommended by the Department of the Attorney General.Attached is a copy of a letter dated February 1,2002 from attorney Max Graham, Jr.,Esq., that authorized the incorporation of an opinion letter dated January 31,2001.The opinion letter responded to allegations that appears to implicate their client inalleged violations of the State Ethics Code.

.

On a final note, it is important to emphasize that there is another side to this story .TheHT A was established through the efforts of the 1998 Economic Revitalization Task Force toaggressively improve Hawaii's economy by strengthening the marketing and promotion oftourism. At the time the Task Force recommendations were being developed, the state'seconomy had been on a downhill slide despite the national economy doing well for several years

We took the task very seriously and have pursued an aggressive marketing programthrough the Hawaii Visitors and Convention Bureau in both leisure and the meetings andconvention markets. If not for what we did with dedicated funding, tourism would not have beenat record levels. We did something we were told to do; we did it; and, we were successful!

57

The Honorable Marion HigaState AuditorOffice of the AuditorFebruary 1, 2002Page Three

Hawaii reached its banner year in tourism two years later in 2000 and was on its way toanother good year in 2001 until the events of September 11, 2001. Since then, with additionallegislative emergency funding, Hawaii is recovering more steadily than other comparabledestinations. So while the HTA has been successful on one side of the ledger, it has clearly beenremiss in another. When it started off in 1998, there was no template to follow, no executivedirector, and limited staff in adequate office space.

While the audit points out numerous shortcomings, it is clear that nothing was ever donewith any malicious intent, nor in an arbitrary or capricious manner. The audit in fact, provides agood template for the HT A board to embark on its current challenge of finding a new executivedirector who can in fact, address all of the points raised in the audit and in so doing, improve theHT A ' s operations and make us a better government agency.

Very truly yours,4

k~r

Roy TokujoChairmanBoard of DirectorsHawaii Tourism Authority

58

FEB~01-02 10.08 FROM.BGPW -LIHUE ID,8082453277 PAGE 2/2

BELLES GRAHAM

PROUDFOOT & WILSON

ATTORNEYS A T LA W

~,.,:~

",

MlCHl\EJ.. I. BELLESMAX WJ. GRAHAM, JR.

()AVlDW. PROUDFOOT"DONALD R, WIL.sON

Fcdcrall.D. No, 99-0317663

~rePAMEI.A I'. RASK

OF COt/mEr.

JONATHAN J, CHUN

w A TUMULL PLAZA4334 RICE STREET .SUrrE 202

LIH.UE. KAUAI, HAWAII 96766-1388

Tm.EPHONE NO; (808) 2454705FACSIMn.E NO; (808) 245.3277

E.MAIL: [email protected]

Febmary 1, 2002Honorable Roy Tokujo

ChairmanHawaii Tourism AuthorityHawaii Convention Center1801 Kalakaua A venue

Honolulu. Hawaii 96815

Re:

Dear Chairman Tokujo:

We have reviewed the allegations contained within the Draft Report and havecompared rhose allegations with the factS contained within official public records, and have, as aresult, prepared the attached opinion letter, dated January 31, 2001, to oUr client regarding theDraft Report. Based on the discussion contained within the opinion letter, we request that the HT ABoard consider incorporating our opinion letter intO their proposed response to the Draft Report inthe event you deem that cou~e of conduct tO be appropriate. In addition. we further request tllat acopy of the Final Report be made available to our client as soon as possible after you have receivedthe same.

Finally, in view of the severe time constraints that were imposed upon our office torespond to the Draft Report by the deadline set by the State Auditor, we reserve the right tosupplement our opinion should additional relevant facts become available. Thank you very muchfor your continued cooperation and assistance in this matter .

Very truly yours.

BELLES GRAHAM

59

MWJG:spcEnclosurecc; Mr. Richard L. Humphries

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JAN~31-02 18.16 FROM.BGPW -LIHUE ID:8082453277 PAGE 2/17

BELLES G RAHAM

PROUDFOOT & WILSON

ATroRNBYS AT LAWASSOa.tlE

P A).feLA " .RASK

OF COUNSEL

JONATHAN J. CHUN

w ATUMULL PLAZA

4334 RICE STREET, SUITE 202

UHUE, KAUAI, HAWAU 96766-1388

TELEPHONE NO: (808) 2A5-4705FACSIMU.:E NO: (808) 2A5-3277

E-MAIL: mail@kauaj-law .com

January 31, 2002

Mr. Gary J. Baldwin

4707 Kapuna RoadKilauea. Kauai? Hawaii 96754

Re: Leg!slative Auditor's Report on the Hawaii Tourism AuthorilY

Dear Mr. Baldwin:

You have asked us to render an opinion concerning allegations in the draftreport ("Draft Report") by the Legislative Auditor on the Hawaii Tourism Authority ("HTA ").Specifically. the Auditor has stated that certain alleged actions and activities as descnDed in theDraft Report may give rise to a violation under the State Code of Ethics as set forth in HawaiiRevised Statutes ("HRS") Chapter 84. In this regard, you have provided us with Pages 18, 19and 20 of the Draft Report. Our prelimjnary analysis, comment and opinion, based on theinformation currently avajlable, is as follows:

Background FactS'.I.

A. Hg~aii Tourism AuthoritY .The Hawaii Tourism Authority was createdpursuant to HRS Chapter 20lB for the purpose of promoting. marketing. and developing thetourism industry in Hawaii. The HT A is a body corporate and a public ins1rumentality of theState consisting of 13 members (10 public voting members. 1 public nonvoting member.1 ex officio voting member, and 1 ex officio nonvoting member) appointed pursuant to HRSSection 20lB.2. It is attached administratively to the State Department of Business, EconomicDevelopment, and Tourism. The HTA is subject to the provisions contained in: HRS Chapter84 (Standards of Conduct); HRS Chapter 91 (Administrative Procedures Act) with regard torule making functions; HRS Section 92-3 (requiring open meetings); HRS Section 924(allowing closed executive m.eerings); and HRS Section 92-5 (allowing closed meetings per

certain exceptions).

You are a Board Member on the HT A, having been appointed to serve a term of

four years coromencing July 1. 1988 and ending June 3072002.

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60

DONAl.1> H. WILSON

fcIIc!i1 ..1)0 NOo 99-0317~

JAN-"31-02 18,17 FROM,8GFW -LIHUE ID.8082453277 PAGE 3/17

Mr. Gary J..BaldwinJ anuary 31, 2002

Page 2

B. Kauai Economic DeveloRment Board. Inc. The Kauai EconomicDevelopment Board, Inc. ("KEDB ") is a Hawaii nonprofit corporation. KEDB wasincorporated on October 19, 1984- KEDB has federal tax exempt status pursuanr to Section501 (c)(3) of the United States Internal Revenue Code of 1954. The primary purpose of KEDBis to promote, solicit, support, and encourage business and economic activities within theCounty of Kauai. There are currently 40 members on the Board of Directors of KEDB(20 regular. 5 sustaining, 3 at large, 12 ex officio).

Your relationship with KEDB since 1988 has been as follows:

I. ~. For all of 1998. you acted as the Chairman of the Board ofDirectors of KEDB. a position for which you received no salary. You resigned f:l:"om theKEDB effective Decembe"r 31,1998.

2 -1222 ,

Executive Officer of KEDB.

1999.

For all of 1999. you functioned as the President and ChiefYou were paid a salary from KEDB for your work throughout

3. ~. Throughout 2000, you served as Managing Director of the KauaiTechnology Center ("Tech Center"). The Tech Center is a project of KEDB, and as itsManaging Director, you were an employee of KEDB and were paid a salary .As noted above,you resigned from the Board of Directors of KEDB prior to this employment.

4. .2:.Q.Ql- Throughout 2001, you continued to act as the Mamging Directorof the Tec,h Center and received compensation from KEDB. In November of 2001, youbecame acting (interim) chair of the KEDB Board of Directors.

5. ~. For 2002, it is intended that you will continue to act as theManaging Director of the Tech Center and as an employee of KEDB. You continue to act as

interim chair of the KEDB Board.

None of the funds you have received from KEDB for services provided arederived from funds received by KEDB from HT A.

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Mr .Gary J. Baldwin

January 31,2002

Page 3

c. HT A/KEDB Contracts.

1. Product DeveloDmen[ Contraf;!. KEDB submitted a ProductDevelopment Proposal dated April 19, 1999 [0 HT A requesting $253 )200 .00 in funds toundertake a series of activities designed to attract tecbnological businesses and commerce toKauai. .Based on the proposal, HTA entered into a Product Development Con11"act (ContractNo. B-0068) dated July 23) 1999 with KEDB, in rhe total amount of $175)000.00. The fundswere used by KEDB in 1999 and 2000 to undertake the technological maxketing plans, whichincluded seminar symposiums on the mainland and in Hawaii) and other business attractionactivities. Ten percent (10%) of rhe contract swn was budgeted for the ad-JDjnis11"ative costsand expenses (including staff time) ofKEDB.

As noted above, during 1999, you were a Board Member of the HTA, as wellas an employee of KEDB (president/CEO)- As refleCted in the Minutes of the HTA Meetingof June 23, 1999. because of your association with both HTA and KEDB, you did notparticipate in the voting on the Product Development Contract by HT A.

2. NFL Quarterback Challene:e Contra.cts. The NFL QuarterbackChallenge is a televised event promoted by the NatioDa1 Football League C"NFL ") involving askills contest among selected NFL quarterbacks. both active and retired. The NFLQuarterback ChaIlenget which is ttaditiona1ly scheduled after the NFL' S Pro Bowl game. washeld on two or three separate occasions prior to 1993 on Kauai. Because of the devastationinflicted by Hurricane Iniki. the NFL Quarterback Challenge was moved in 1993 to Florida,where it remained for th.e next seven years. The NFL Quarterback Challenge is traditionallyheld in early February and televised in July.

In the past, the NFL Quarterback Challenge had provided a unique andbeneficial visitor marketing tool for Hawaii in general and Kauai in particular .As a result, in1999 the ETA decided that it would approach the NFL in the hopes of having the NFLQuarterback Challenge returned to Hawaii. The HT A was successful in this endeavor, and 38a result in late 1999 entered into a contract with NFL Properries, Inc. to have the NFLQuarterback Challenge held in Hawaii (on Kauai) for 2000 and 2001. You voted to approvethe contract betWeen HTA and NFL Properties, Inc. ("NFL/HTA Contract") to hold the NFLQuarterback Challenge in Hawaii in 2000 and 2001. Thereafter, the funds necessary to fulfillthe NFL/HT A Contract were allocated as a line item to HT A's budget for the fiscal yearsinvolved. You voted to approve the HT A budget in general. However, all of this precededthe NFL Quarterback Challenge Contract between HT A and KEDB for 2000 and 200 1 ,

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Mr .Gary J. BaJdwin

January 31.2002

Page 4

respectively. Furthermore, your votes on the NFUHTA Conttact and the HTA budget did notobligate HT A to enter into the NFL Quarterback Challenge Contract between HT A andKEDB.

Because HT A was not prepared to undertake the administrative taSks andphysical activities necessary to actUally facilitate the event on Kauai, and because HTA couldnot pay vendors in as timely a fashion as would be expected by private parties and smallbusinesses, HTA entered into service contracts with KEDB to undertake such responsibilities.These contracts win be more fully identified below. However, the basic premise of thesecontracts was: that KEDB was to undertake an activities necessary to promote and coordinatethe event on Kauai; that KEDB would front an of the costs necessary to undertake theseactivities, in an amount not to exceed tl1e contract price; that KEDB would thereafter bereimbUt"sed by HT A for such expenses; and that KEDB would receive no administrative fee,nor would it charge any administrative costs, for itS participation UDder the contract. As aresult. KEDB received no fInancial benefit from the NFL Quarterback Challenge contracts,and in fact incurred unreimbursable costs for both KEDB staff time and office expenses.Nevertheless, KEDB undertook these activities because of the beneticial impacts that thetelevising of the NFL Quarterback Challenge had for the County of Kauai. The specificcontracts for the NFL Quarterback Challenge are listed below:

a. 2000 NFL Quarterback Challen2:e. m A and KEDB entered intothree separate contracts for services tO be provided by KEDB in coordinating the NFLQuarterback Challenge on Kauai in tile year 2000. These contracts were for $150,000.OO(Contract No. B-00-58 dated February 9, 2000), $135,000.00 (ContraCt No. B-00-74 datedMay 24. 2000). and a contract for $175,000.00 (Contract dared May 24, 2000), for the tot:ilsum of $460,000.00. We understand. however, that the HTA line irem budget for the eventwas $350,000.00, and that this amount was not exceeded. The NFL Quarterback Challengewas held on Kauai on February 10, 2000.

In tlle year 2000, you were a Member of tlle Boaxd of HTA, and were anemployee ofKEDB (Managing Director, Kauai Technology Center).

b. 2001 NFL Quarterback Cha11enf!e Contract. The HTA andKEDB entered into Contract No. BT-01-82 dated February 1, 2001, for the perfonnance byKEDB of services related to the 2001 NFL Quarterback Challenge. The Contract sum was$400,000.00. This Contract was amended by Supplemenral Agreement No.1 dated June 19,2001, which extended the time of performance (relating to the submission of a fmancial report)

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Mr .Gary J. Baldwin

J anuary 31 , 2002

Page 5

from June: 30, 2001 to July 31.2001. The: 2001 Quarterback CbaIlenge was held on Kauai on

February 8,2001.

In 2001, you were a member of the HTA and an employee of KEDB

(Managing Director. Kauai Technology Center).

D .Factual Inaccuracies in Draft R~ort. Based on the information we havebeen provided, it appearS: that the Draft Report contAins the following facroal inaccuracies:

I. The Draft Report stares that the 200 1 NFL QuarterbackChallenge Contract was signed after the event was held in February of 2001. However1 asnoted above, the Contract was dated February 1. 20011 and the event was held on February 812001.

2. Referring to the Product Development Contract. the Draft Reportstates that in June, 1999, a letter was received by KEDB from HTA indicating that it had beenawarded $75)000-00 for ~e Product Development Project~ that the Con1ract which wasawarded thereafter was for $175,000-00, and that HTA could only document the existence ofan original proposal for $75,000.00. However, as noted above, KEDB initially submitted aProduct Development Proposal (dated April 19, 1999). in the amount of $253,200.00, to HTA.It was on the basis of that proposal that the Product Development Contract in the amount of$175,000.00 was awarded-

3. Exhibit 2.1 of the Draft Report (page 19) should be corrected inthe following respectS: HTA contracted with KEDB to provide services related to the 2000NFL Quarterback Challenge by Conn-act dated February 9 ~ 2000 and May 24 , 2000 .Similarly, HTA contracted with KEDB to provide services related to the 2001 NFLQuarterback Challenge pursuant to a Contract dated February 1) 2001.

n. ~gal Analysis.

HRS Sections 84-13 and 84-14.A

HRS Section 84-13 provides in relevant part as follows:

"No...employee shall use or attempt to Usethe...employee's official position to secure or grant

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Mr .Gary J. Baldwin

January 31.2002

Page 6

unwarranted privileges, exemptions, advantages,contracts, or 1reannents for oneself or others "

HRS Section 84-14 provides in relevant part as follows;

"(a) No employee shall take any official action directly

affecting:

(1) A business or other undertaking in whichhe has a substantial fmanciaI interest. ..-"

With regard to the Product Development Conn-act, you did not participate in thevoting by HT A on this Conttact. As a result, it does not appear that you used your officialposition as a HTA Board Member to secure this Contract in favor of KEDB. As noted in theminutes of the HTA meeting for June 23, 1999:

" Chair Quitiquit called for a vote on the list of

recommended product development projects. Both sheand Mr. BaJdwin excused themselves from voting because

they either have served, or are currently serving in an ex

officio capacity 1 with some of the groups that have

submitted proposals.

Mr .Vieira made a motion to approve the list as

recommended by the committee. Mr .Rolfing secondedthe motion, which carried 11n~n;mously. "

With regard to the NFL Quarterback Challenge Contract, it does not appeM asthough your voting regarding the HT A Contract with NFL Properties, Inc. or on the largerevents budget for HTA (of which the allocation for the NFL Quarterback Challenge was a lineitem) violated HRS Sections 84-13 or 84-14. In addition, you did not participate in anydecisions on HTA's behalf relating to the formation and execution by HTA of the NFLQuarterback Challenge Contract with KEDB, that matter being left to the discretion of theChief Executive Officer of HT A. Finally, it is important to note that KEDB intended to

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Mr. Gary J. BaldwinJanuary 31, 2002Page 7

receive no fmancial benefit from the NFL Quarterback Challenge Contracts, and in fact:suffered financial losses through its participation in these events-

B. fIRS Section 84-15.

HRS Section 84-15 provides in relevant pan as follows:

"(a) A State agency shall not enter into any contract toprocure or dispose of goods or services...with...a businessin which;..an employee has a controlling interest,involving services or property of a value in excess of$10,000.00 "

HRS Section 84-3 defmes II Controlling Interest " as an interest in a business

which is sufficient in fact to control. whether the interest be greater or less than 50%. Sinceyou did not have a controIIing interest in KEDB, this section would clearly have no

application.

ill. Recommendation.

As noted in the an:ached MinuteS of the HTA Special Meeting of March 16,2001) the HT A received advice from the Executive Director of the State Ethics Commissionconcerning the application of HRS Chapter 84 to the HT A. Although the advice given wasmeant to be general in nawre, it appears that it could be in conflict with the conclusions drawnin rhe Draft Report concerning the applicability of HRS Chapter 84. At the very least. theadvice given by the Executive Director of the State Ethics Commission and the conclusionsdrawn in the Draft Report would certainly lead to uncertainty and confusion on your partconcerning your duties and obligations under HRS Chapter 84. I therefore recommend thatyou provide the State Etrlics Commission with a full facroal explanation of the issues raised inthe Draft Report and discussed in this letter. and ask the State Ethics Commission for guidanceas to how you should proceed in the future in these matters .

Finally. it must be emphasized that the foregoing analysis and opinion isintended to be preliminary in namre due to the fact that the time constraints imposed by theState Auditor relative to the deadline for commentS on the Draft Report severely limited ourability to obtain and review all relevant public records and files pertaining to d1is matter. As a

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Mr .Gary J. Baldwin

January 31,2002

Page 8

result, we strongly recommend that our response be supplemented in the furore in the eventadditional relevant facts ~nd data are uncovered in our continuing investigation of this issue.

Sincerely yours,

BELLES GRAHAM

PROUDFO~~~~-/Art \

Max I. Graham. Ir.

MWJG:jgmEnclosure

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10/17JAN-31-02 18.18 FROM.BGPW -LIHUEHIA ~peclallVleetmg -!V larch 16, lUUl

BEtIjjAMIN J. CAveTA~~

Hawaii Tourism ~!lthori

..~9- Co-'*" CaIMr. 18D11<a~1cau8 PN$~. M.1.d,~. ~ ~1S 'k~ ~ S7WS~ -."""'u.~ Fa (8(J8J ~

HAWAII TOURISM AIUTHORITYSPECIAL MEETING

Hawai'i Convention CenterExecutive Board Room (Parking Level)

1801 Kalakaua AvenueHonolulu, Hawaii 96815

March 16,2001

MINUTES OF MEETING

MEMBERSPRESENT;

MEMBERS NOTPRESENT:

Chair Roy Tokujo, David Care~y. Gary Baldwin, Shari Chang,David Gleason, Pearl Imada-Iboshi (for Dr. Seiji Naya}, Mlllle Kim,Gilbert Kimura, Kalowena Komeiji, and Ron Wright

Seiji Naya. Peter Schall, and Keith Vieira

Robert Fishman, Lori Guerin, Winfred Pong, and LloydUnebasami .HTA STAFFPRESENT:

Legal CounselPresent:

John Chang, Deputy Attorney General

1. CALL TO ORDER AND COMMENTS BY CHAIR

Chair Roy Tokujo called the Hawaii Tourism J\uthority (HTA) special meeting toorder on March 16.2001 at 8:35 a.m.

Moving out of order on the agenda, Chair Tokujo requested that the "Adoption ofthe Intergovernmental Memorandum of Understanding between the HawaiiTourism Authority, State of Hawaii, and the Honolulu Police D'epartment Relatingto Funding to Enhance Visitor Experiences within the City and County ofHonolulu", covered under Item 3, would be taken up first on the agenda.

Ms. Shari Chang stated that she was hoping to stay with the order of businessbecause she had a question directed to Mr. Mollway, concerning Aloha Airline'ssponsorship to the Asian Development Bank (ADB) and whether she needed torecuse herself from discussion.

Deputy Attorney General John Chang explained that the memorandum ofunderstanding (MOU) is between HT A and the Police Department. Ms. Chang'scompany is not a direct beneficiary of the MOU- He further stated that unless Ms.Chang's company is having something to do with ADB, she can make that knownto the Board, and she would not need to recuse herself from voting. He explainedthat the potential conflict is made known, and the Chair may allow her to vote- Atthis time, Ms. Chang advised the Board that "on behalf of Aloha Airlines, we arean airline sponsor of ADS providing airline tickets to ADB, as a sponsor:'Thereafter. Mr- Carey alsp advised the Board that "our hotels wiIJ be providingrooms for delegates of the convention, and we expect to be a sponsor" eventhough "specifics have not been agreed to at this point "

68

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There were no further objections to the Chair's request to proceed with Agendaitem 3, at this time.

3. ADOPTION OF THE INTERGOVERNMENTAL MEMORANDUM OFUNDERSTANDING BETWEEN THE HAWA" TOURISM AUTHORITY, STATEOF HAWAII, AND THE HONOLULU POLICE DEPARTMENT RELATING TOFUNDING TO ENHANCE VISITOR EXPERIENCES WITHIN THE CIlY ANDCOUNTY OF HONOLULU

EXEc-unve SESSION

MOTION. Mr. Baldwin mQde a motion to mov,e into executive sessionpursuant to HRS 92-4, for tile purpose of the executive meeting is toreport"on: 1) consider sensitive matters related to public safety andsecurity under HRS 92.5 (6): and 2} consult ~,ith the board's attorney onquestions and issues pertaining to the board'!; powers, duties, privileges,immunities, and liabilities under Hawaii Revis~~d Statutes. Section 92.5 (a}(4}.

The motion was seconded by Ms. Kim and unlanimously carried.

The board entered into an executive session .~t 8:40 a.m, after a voicecount vote was taken:

AYES:

David CareyGary BaJdwinShari ChangDavid GleasonPearl Imada-Iboshi (for Dr. Seui Naya)Millie KimGilbert KimuraRon WrightRoy Tokujo, Chair

NAYS:

None.

The special meeting was reconvened at 9:20 a.m.

Mr. Baldwin made reference to the Memorandum of Understanding(MOU) dated March 15. 2001 tha~ were distributed to the Board. Afternoting that he worked with staff to revise the MOU after the last meetingon February 23, 2001 to address the Board's c;oncems, Mr. Baldwin madea motion, seconded by Ms. Kim, to approve the March 15, 2001 version ofthe MOU with the City and County of HonolulLI.

During a discussion of the various provisions in the MOU, variousmembers expressed a desire to amend the MOU to recognize that theHT A is executing the MOU as an executive agent for the Hawai'jConvention Center; that the HTA is sponsorin!~ the ADS Conferenceunder an initiative directed from the Governor and consistent with theHTA's strategic plan to market and promote Hawaii as a businessdestination, especially the international busineiss market; that HTA desiresto protect the HCC from potential property darnage; that the expenditurewill be for fiscal year 2001; and that the signatory will be with the City andCounty of Honolulu.

Mr. Baldwin moved, and seconded by Mr. Carey, to amend his motion to69

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recognize that the HTA is executing the MOl) as an executive agent forthe Hawai'i Convention Center; that tl1e HTA is sponsoring the ADB .Conference under an initiative directed from the Governor and consistentwith the HTA's strategic plan to market and promote Hawaii as a businessdestination, especially the international business market; that HT A desiresto protect the HCC from potential property d~~mage; that the expenditurewill be for fiscal year 2001; and that the sign(~tory will be with the City andCounty of Honolulu. A roll call vote was t:ak.en on the amended motion asfollows:

AYES=

David CareyGary BaldwinShari ChangDavid GleasonPearl Imada-lboshi (for Dr. Seiji Naya)Millie KimGilbert KimuraRon WrightRoy Tokujo, Chair

NA VS:

None.

The amended motion was passed unanimous;ly. A roll call vote was takenon the main motion as follows:

A YES:

David CareyGary BaldwinShari ChangDavid GleasonPearl Imada-Iboshi (for Dr. Seiji Naya)Millie KimGilbert KimuraRon WrightRoy Tokujo, Chair

NA vs:

None-

The main motion was passed unanimously.

2. DISCUSSION wrrn DAN MOLLWA Y REGARDING THE APPUCA TlON OFTHE STATE ETHICS CODE

The relevant sections of Chapter 84 from the Hawaii Revised Statutes related tothe "Standards of Conducf' fOr members appointed to a sta~e board orcommission was included in each member's t)inder.

Mr. Daniel Mollway, executive djrector, State 'Ethics Commission, was r.equestedto participate in a discussion of the fac:tual situations that are likely to raisequestions about ethics. Specifically, Mr. Molfway was asked to define HRS §84-3("Financial Interest"), HRS §84-13 ("Fair Treatment"), and HRS §84-14("Conflicts of Interest").

ChairTokujo recalled that when the Hawaii Tourism Authority was in its inceptionstage. Mr. Mollway was asked to meet with the Board to discuss conflicts of

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interest, but there were none at the time. However, now that the HTA is twoyears into operation. questions are now being raised about conflicts of interests.He added to what extent should matters be discussed and when should a Boardmember recuse themself from discussion.

Mr. Mollway briefly explained the State Ethi(: Commission's history, from itsinception in 1968, the duties and responsibilities, and the relevant sections thatare contained in Chapter 84 of the Hawaii Revised Statutes.

After noting that the Board members must comply with Chapter 84 as a matter oflaw, Mr- MolJway suggested that the Board may adopt its own policies toestablish ethical guidelines. He further remarked that the media and legislatorsmay present their own concept of what is a ~;onf1ict of interest and that there is adistinction between whether you are interpre~ting the law or just giving your ownpersonal view of conflicts- He noted that siru:e anything can be called a conflict,he requested the members to seek advice fr"om the Ethics Commission as towhether they are in compliance with the ethics laws or whether they are beingpresented with a personal view of a conflict of interest.

Mr. Mol/way continued -by stating that the conflicts laws are written very narrowlybecause the more you expand the law the more you would have board membersrecusing themselves from voting. In the priviate sector, companies can do .whatever they wanlln the public sector, there are ethics laws. He further notedthat he has been reading the State Ethics Cc)de for over 19 1/2 years and hebarely understands it because the law is wri11en so badly.

He remarked that there would be a conflict for interest if you worked for AlohaAirlines and take official action affecting Aloha Airlines as a board member. Theboard member must recuse herself because, the board member has a financialinterest in the company even it the board me!mber may just be: a janitor employeeof the company.

Mr. Mollway referred to a Hawaii Supreme c:ourt opinion that interpreted theState Ethics Code and held that there is no c~nflict of interest if there areintervening or speculative factors between a board member's decision and thepotential benefit to the member's company- "rhe interest held by a spouse anddependant child would also be treated as thE~ interest of the board member.

He continued to encourage all board membeirs to utilize the Ethics Commission'sconfidential advisory opinion process. Once the Commission renders an opinion,the Commission will defend its opinion against claims by other people who mayhave a personal belief that a conflict of interE$t exists.

Chair Tokujo inquired whether the Ethics Commission utilizes a guideline toassist the decision-making and what is the rE~sponse tumaround. Mr- Mollwayindicated that 99.9 percent of the inquiries are made over the phone and that hisoffice will respond immediately during the phone call.

Chair Tokujo further inquired whether Ms. Chang had a conflict of interest whenher company is a sponsor for the Asian Development Bank Conference and sheparticipated in the Board's decision-making on matters related to the AsianDevelopment Bank. Mr. Mollway provided an analysis of the law by initiallyasking whether the board member has a financial interest in the company and tothen ask if the action as a state official is going to directly affect the company.Based upon Mr. Mollway's understanding, it was his belief that whether Ms.Chang's decision will directly affect the company is remote and speculative.

Mr. Carey stated that the issue he has relates to whether there are conflj(;ts ofinterests when the HT A supports a wide range of events and activities that havemultiple company sponsorships. He explainE~d that there are some events hiscompany may sponsor because we are chipping in for the benefit of thecommunily and there are other events that ti:te company expects specificmarketing benefits. He further noted that there are promotional events where youhave 50 companies on the list of sponsors that would provide hotel rooms, airline

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14/1?

tickets, or cash, and the HTA would also be on the list, including the HVC8. Heinquired whether his company's participatiorl as one of many sponsors in eventssuch as the Sony Open, Great Aloha Run, olr the Pontiac gymnastic tournamentwill be interpreted as a financial interest in tl"te event that would lead to a conflictof interest

Mr. Carey expressed his belief that there would not be a conflict of interest if hiscompany and the HT A were one of the numerous sponsors for the eventHowever. there would be a conflict if his company will directly benefit by theactual booking of rooms solely because HT.A\ had sponsored the event. In thelater situation, there was a closer nexus betvl/een the HTA decision and a benefitto the company. Mr. Mollway agreed with Mr. Carey's belief.

Mr. Carey remarked that it was not until this Ilegislative session that his companyhas been criticized for being sponsors of eVeints that the HTA has alsosponsored. He noted that in many instances his company does not receive anybenefit from sponsoring the event Any bene1~t may come from the publicitygenerated by the media and not through his I:ompany. Mr- Carey noted that insome cases he voluntarily recused himself frl~m voting not because he believedthere was a conflict of interest but because of his personal moral principals. Mr.Mollway also noted that members of the Ethil:s Commission would also recusethemselves not because the law requires it blut just because it would probablycreate more problems than its worth-

Mr. Carey recommended that the staff work c:ollaboratively with the AttorneyGeneral's Office and the State Ethics Commi:>sion in drafting a set of policyguidelines that the board can utilize as a refelrence when potential ethicalscenarios arise.

Ms. Chang queried whether there is a conflic1' if board members vote onapproving a contract that has been awarded I:hrough a RFP process to acontractor that also has a contract with the board members company. Mr .Mollway responded that there is no conflict if Ithe approval of the contract has nodirect affect upon the board member's company.

Mr. Carey initiated a discussion of a situation when board members makedecisions that will benefit the visitor industry .I~r. Mollway presented a lengthydiscussion of the issues related to "mandated board members." The boardmembers were appointed because the law mandates the appointment of boardmembers from specific professions or who mciintain specific expertise. Mr .Mollway's office has interpreted the law to not require a mandated board memberto recuse himself if the board member is required to vote on a matter related tothe member's profession or expertise. As a mandated board member, the boardmember can take action that affects the industry even though the board memberis also a member of the industry .

Mr- Mollway further noted that if you are a ma'ndated board member, you havemore of a license, so to speak, under the conflicts law than a non-mandatedboard member, Consequently, a non-mandate!d board member whose spouseworks at the Sheraton may have to go by the :stricter conflicts law while amandated board member may not Mr. Mollw,ly also noted, however, tl1at amandated board member should not misuse ~he official position to give themember or anyone an unwarranted advantage, preferential treatment, orfuvoritism. It is important for any board memb~~r to know whether they are votingbecause it would be good for the State or voting because it.would be good for thecompany.

Mr. Unebasami presented a situation where a board member's company was apreferred sponsor for an event supported .by the HT A Mr. Mollway stated thatthe reference to a sponsor being a preferred sponsor does not mean that it is aforegone conclusion that people are required to use the product or seMcesbeing provided by the preferred sponsor. There is no conflict because there maynot be any direct link or ftnancial benefit betwE!en being a preferred sponsor anda decision by HTA to support the event. Howe:ver, there may be conflict under acircumstance when the consumer is required ItO purchase the product or ser'/ice

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as a condition for going to the event sponsorE~d by the HTA

Ms. Chang inquired whether a HTA Board mE~mber can aggressively requestfunding for an event when the HTA board member also sits as a Board memberfor an event that is seeking funding from the I;TA Mr. Mollway responded that aHT A Board member can not appear before the HT A to represent or assistanyone for pay. If the HT A Board member is ;3ppearing without pay and not as amember of the HTA. the HTABoard member can attend the HTA meeting as aprivate individual.

Chair Tokujo queried whether othel' boards hcwe their own ethic laws that areendorsed by the State Ethics Commission. If :so, Chair Tokujo recommended thatMr. Pong work collaboratively with the Office of the Attorney General to come upwith various conflict situations that will be addressed before the conflict arises.Mr. MolJwQy responded that in general boards; do not develop their own ethicspolicies. However, his office can put together something that explains theconflicts laws or hypotheticals to show when and what are potential ethicalconsiderations.

Mr. Baldwin requested clarification regarding \whether the ethics laws applies toindependent contractors hired by the State. Mr. Mollway stated that independentcontractors are not State employees; and, therefore, the ethics laws do not applyto independent contracto.rs. Independent contl-actors who are also acting asState officials are subject to the ethics laws.

At this time, Chair Tokujo stated that he must leave the meeting to attend alegislative hearing. It was noted that upon Chair Tokujo's absence there would alack of quorum of voting members.

4. ADJOURNMENT

Due to a legislative commitment, Chair Tokujo excused himself from the specialmeeting.

At this point, Deputy Attorney General Chang ;advised that the special meetingwill be adjourned and hereon, no discussion aJ1d action can be taken at thismeeting- .

On a final note, Ms. Chang expressed the imp~rtance of the Board to alsorecetve a copy of the submitted responses to the legislators questions, in atimely manner.

The regular meeting was adjourned at 10:45 a.m.

Respectfully submitted,

Lori GuerinRecording Secretary

HTA Aoenda & Miiiuj~

73

A TT ACHMENT 3

-;......\

!BENJAMIN J. CAYETANO

Governor

RICHARD L. HUMPHREYSExecutive Director

Hawaii Convention Center, 1801 Kalakaua Avenue, Honolulu, Hawaii 96815Website: www.hawaii.gov/tourism

Telephone: (808) 973-2255Fax: (808} 973-2253

February 1,2002

REC IVED

rea 14! AH 'OZ

OFC. OF T~iE AUDiTORSTATE OF HAWAII

The Honorable Marion HigaState AuditorOffice of the Auditor465 South King Street, Room 500Honolulu, Hawaii 96813

Dear Ms. Riga:

Re: Draft Report of the Management of the Hawaii Tourism Authority

We accept the Audit with anticipation of evolving the Hawaii Tourism Authority's ("HT A ")from an entity mandated to focus primarily on aggressive marketing and promotion of tourismfor the state, into an agency that will balance that important charge with more stringentmanagement and government processes.

As a means of improving Hawaii's falling economy and to reverse the long trend of zero tonegative growth in the tourism industry , the Legislature adopted various economic reformrecommendations presented by the Governor's Economic Revitalization Task Force during the1998 legislative session. This included the establishment of a first-ever dedicated mechanism tofund tourism at a globally competitive level, and an executive board to oversee that fund for thepurpose of strengthening the marketing and promotion of Hawaii's tourism industry .

As a relatively new agency formed by a vision between public and private sectors, the HT A hasmoved through uncharted waters during its first few years. When the HT A was first establishedunder Act 156, SLH 1998, it was given broad responsibilities for planning, coordination andprogram development within Hawaii' s visitor industry , especially with respect to marketing.However, the HT A was also created in response to Hawaii's dire economic situation. Thus,starting from its first year of operation in the latter part of 1998, a dedicated and "results-oriented" group ofhigh level business executives, community leaders, and State departmentheads served on the newly established HT A board on a volunteer basis, went immediately towork on developing and implement a tourism :strategic plan for the State of Hawaii. Themessage was clear that the HT A needed to aggressively focus on reviving the visitorindustry versus devoting critical time in establishing a well-structured, bureaucraticorganization. However, in no way does this abdicate our responsibility to the public to be afiscally responsible organization.

74

Since its inception, the primary focus and attention of the HT A executive board and staff hasbeen dedicated to immediately turn Hawaii's economy around, by developing, evaluating,revising, and measuring its tourism strategic plan as the new plan experienced various phases ofimplementation. The fruits of its efforts were reflected in visitor statistics during the year 2000and until September 11,2001 achieving record levels. Now that the plan's foundation has beenset, the HT A recognizes the immediate need to evolve into a government agency that must alsodedicate its efforts and resources to maintain :)trict management and government policies andprocedures to insure public accountability .T1i1e audit as clarified herein, gives us a goodroadmap.

FINDINGS AND HTA'S RESPONSE

The Auditor has presented various conclusions and findings that require clarification.

Ern, we respond to the finding on pages 10-12 that "the Authority's strategic planning processwas deficient" as follows:

. "Key Elements of a Strategic Plan." It appears that the finding is based upon a belief that acomprehensive strategic plan should include the following key items:~ infrastructure analyses;~ environmental considerations;~ specifications of implementation and monitoring procedures;~ a description of the program evaluatio][l used in establishing or revising goals and

objectives~ with a schedule for future program evaluations;~ a methodology statement; and~ a schedule for future program evaluations.

It should be noted that the Auditor's report makes reference to some key elements that theybelieve should be incorporated into tourism strategic plans. The HT A notes that there aredifferent approaches to developing such a plan and that as a result, not all such plans containthese elements. This can be seen with the Australian Tourist Commission's Corporate Plan,the Tourist Industry Association New Zealand's "The New Zealand Tourism Strategy 2010,'and Montana's "1998-2002 Strategic Plan for Travel & Tourism."

The HT A provides the following additional comments on two items referenced above:

Infrastructure Analysis. The HT A maintains that while its tourism strategic plan, KeKumu, does not contain the infrastructure analysis referred to above, that one of thefoundation document, upon which its plan was based, did provide general information oninfrastructure by county. Specifically, this: foundation document, Hawaii Tourism ProductAssessment, performed by KPMG, LLP and other noted industry professionals, describedboth the reality and perception of the kinds of events, attractions and experiences whichHawaii provides visitors. In particular, this study included the following "product"components by county: top visitor attractions, notable scenic/physical attributes, visitor plant

2

75

assessment and infrastructure resources (airports, harbors, and highways/roads). It should benoted that a more comprehensive infrastnlcture analysis will be performed as part of thestate's Sustainable Tourism Study which is being done by the Department of Business,Economic Development and Tourism (DBEDT), in partnership with the HT A.

Specifications of implementation and mlonitoring procedures. The Authority has alwaysmaintained that Ke Kumu is a broad, strategic, long-range plan intended to serve as the basisfor HTA's tactical programs and activities. For this reason, Ke Kumu was never intended tobe a tactical plan describing how each initiative would be implemented. Rather, the HT Adevelops and executes a diverse range ofprojects, programs and activities each year, that bestserve the initiatives outlined in the plan.

. "No schedule for periodically reviewing: Ke Kumu."According to HRS 201B, the HTA is authorized to "develop and implement the State tourismstrategic marketing plan, which shall be updated every three years, to promote and marketthe state as a desirable visitor destination. II Therefore, pursuant to the statutes that created

the Authority , the schedule for updating R.e Kumu is every three years or as needed. As thefirst plan was drafted in June 1999, the HTA is not required to update it until June 2002.Nevertheless, last year, the HTA began steps to update its plan. Then, on January 30,2002,the HT A approved the revised plan at its board meeting.

It should be noted that Ke Kumu is a broad, strategic plan that outlines several initiativesupon which the HTA will focus its resour(~es. For this reason, each year, the HTA developsspecific activities and programs to carry out those broad initiatives. The HT A also makesannual reviews and revisions (as necessaf)r) of its visitor industry planning targets in theareas of visitor expenditures, visitor days and visitor arrivals to ensure that the Authority'soverall goal of visitor expenditures is being met.

. "Failure to incorporate (public) input iIitO the plan."In the strategic planning process to develop the original version of Ke Kumu in 1999, theHTA collected the most comprehensive input known to date from Hawaii's tourismstakeholders. Almost 5,000 individuals were contacted and over 2,500 provided inputthrough surveys, focus groups, planning charrettes, and interviews. Those participating inthis process included four major groups ofHawaii's stakeholders: visitors, residents, privatesector and government.

Once Ke Kumu was first drafted in 1999, the HT A held a series of 10 public meetings on allislands for community review and further input with over 700 people attending thesemeetings. Overall, the HTA board felt that the plan was well-received and that the commentsreceived during those meetings were more appropriately addressed to programimplementation and management, as opposed to changes in the plan's direction. For thisreason, the board chose not to revise its plcm based on these comments and made adetermination to address the community's suggestions at those meetings as well as othersthat are made throughout the year, through the implementation of its programs (e.g., ProductDevelopment) and other activities.

3

76

In early 200 1, the HT A made revisions to the original Ke Kumu and in November 200 1, tookthe revised plan out to share with the island communities in a series of meetings throughoutthe state, Based on pertinent comments fi'om those meetings relating to its plan and otherinformation, Ke Kumu was revised and approved by the board on January 30, 2002.

The HT A points out that its strategic plarutling process is ongoing as Ke Kumu is a living

Second, we respond to the finding on page 16, that "The authority was missing $106,162 worthof invoices for FY 1999-00 and $68,250 for FY 2000-01" as follows:

. It appears that the finding is based upon tlle understanding that the HT A did not keep recordsof complete invoices for Fishman Enterprilses from FY 1999-00 and FY 2000-0 I.

. We regret that when the Auditor conducted its fieldwork, the HT A was not infonned of thisdiscrepancy, as the necessary files could have been provided to the Auditor, and those filescontain the invoices indicated above that were missing.

. The HTA maintains that the processing of all invoices for payment through the State'sDepartment of Accounting and General St:rvices (DAGS), require the followingdocumentation:~ A valid professional services contract;~ A current Department of Taxation and Internal Revenue Service tax clearance upon

execution of the contract;~ An original DAGS voucher to request payment of an invoice; and~ The original contractor's invoice.

. Documentation for any and all payments b,y the HT A confonns to the state's requirements.As such, the Department of Business, Economic Development and Tourism (DBEDT) andthe HT A files contain copies of all invoices submitted for payment with a copy of thevoucher .

Third, we respond to the finding on page 20, that the "authority failed to comply with state lawsgoverning public meetings" as follows:

It appears that the finding is based upon the understanding that the HT A "failed to keepminutes of all its executive sessions."

We regret that at the time the Auditor conducted its fieldwork and requested a HT A staffmember for access to all executive meetin!~ minutes, the staff member inadvertently failed tounderstand that minutes of executive meetings held prior to August 1999 were electronicallymaintained on the HT A's central computer files. Consequently, executive meeting minutesare available for the following six meeting:s since its inception in 1998:

4

77

document. Throughout this process, the HTA will continue to involve the community inmore meaningful ways.

~ October 27, 1998;

~ January 6, 1999;

~ January 13, 1999;

~ January 27, 1999;

~ February 5, 1999; and

~ March 3,1999.

. Hand-written notes of executive meeting minutes were maintained for the following 15meetings; however, the notes were not developed into a format for public review anddistribution at the time inspection was requested because there was an understanding thatpublication of the executive meeting minutes would defeat the lawful purpose for theexecutive meeting:~ August 25, 1999;~ September 2, 1999;~ September 8, 1999;~ September 15, 1999;~ September 20, 1999;~ October 6, 1999;~ November 11, 1999;~ March 16,2001;~ August 25,2001;~ May 30, 2001;~ July 18,2001;~ July 25,2001;~ August 14, 2001;~ September 5,2001; and~ September 26, 2001

. The HT A will continue to rely upon the advice and consultation provided by the Departmentof the Attorney General to ensure that the integrity and process for the conduct of executivemeetings are maintained.

F ourth, we respond to the finding on page 25 that the "Contract awarding process is defective,"as follows:

. It appears that the finding is based upon the understanding that of the 51 contracts awardedfor a program area, the Auditor found that 29 percent were missing a score from one of thethree evaluators or were missing a completed evaluation form.

. It should be noted that the award process for contracts in the product enrichment, events andfestivals programs for the HT A is adhered to by staff according to the evaluation criteriastated and set out in the respective Requests for Proposals (RFPs). During the course of theyear, there may be no less than three RFPs in the aforementioned programs published by theHT A. As a result, hundreds of proposals are considered throughout the year, either through

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the RFP offerings, or through individuals or entities submitting requests for funding outsideof the RFP process.

It must be stated and emphasized that eve"ry effort is made to ensure that the integrity of theprocess is not compromised. The excessive number of proposals that need to be evaluatedduring a relatively condensed period of time sometimes allows for only a cursory review ofthe proposals. Based on the expertise of the evaluator, these proposals can be eliminatedimmediately so that more substantive proposals, or those proposals which better fit thecategory of submission, can be reviewed in further detail.

.

. In addition, the Audit team was advised that a model project, allowing an entity at the Countylevel (in this instance, the County of KauaLi) is being carefully scrutinized to determine amore efficient way to handle the award and administration of product enrichment projects.This project was awarded with the understanding that the County would handle all theadministrative work, would select those projects to support based on HT A criteria and overallstrategy, and would work with the HT A rt:garding this "concept."

At present, and at the direction of the inte]im Executive Director and the board, an overallstrategy, policy and implementation plan, based on the Kauai model, is being developed sothat selection, award and contracting of projects for each island will be handled by a countyentity ( e.g. County, Economic Development Board, Chamber of Commerce) with direction,management review and oversight by HT i\.

.

This, then, indicates that the HT A is making positive inroads in how we can more efficiently,effectively and with more accountability provide support to projects which enhance our

visitor product.

.

fifth, we respond to the finding on page 25 that "Sound Contracting Practices are Disregarded,"

as follows:

It appears that the finding is based upon the belief that a contract should be fully executedprior to the event occurring.

.

. It should be noted that the concerns articulated in this section have implications when buyingspecific goods and services. In the case of the contracts awarded by HT A such as thesponsoring of projects, events and festivals, the type of contracting need not be so rigid andbureaucratic. The HTA does not develop these projects. Rather, the HTA plays a support orenhancement role so that these projects ar(~ able to further develop and grow, and becomeeconomic development generators in their communities. Matching funds are required, andHTA's support is subject to knowing that only a portion of the funding is provided and theevent or project is able to proceed on its o,¥n, based on the HT A commitment letter made atthe time of the award.

In addition, the Audit points out the ineffic:iencies reflected at HT A; however, the Audit doesnot acknowledge that the HTA is there to SIUppOrt and assist in any way we can those projects

.

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which might not have the most sophisticated management or organizational structure.Therefore, information emanating from th.e project's organizers or management may not beas forthcoming and timely, but the HTA remains flexible and supportive of the needs of theseentities.

Six.th, we respond to the finding on page 26 that "Multimillion dollar payments to HawaiiVisitors and Convention Bureau are made wi1:h little justification" as follows:

. It appears that the finding is based upon a belief that progress payments to HVCB should betied to "measurable deliverables." The HT A has contracted HVCB to provide marketingservices (vis-fl-vis, the purchase of specific goods or specific generic services). Moreover,the HTA has contracted HVCB to market and promote an image for Hawaii (vis-fl-vis, aspecific product or service.) It is well-known by marketing experts that there is an inherenttime lag from the time a marketing plan ~'as executed to the time when the direct results ofthat marketing plan can be determined or "measured. The time lag is even greater when themarketing plan is directed towards the promotion of an image, versus a "call to sale" action.Any periodic or progress payment to HV(~B can not be tied or conditioned upon achievingthe results of a marketing plan prior to payment.

. Contract deliverables are provided to the HT A by the HVCB on a regular basis through thenumerous reports (i.e., monthly financial reports, quarterly reports, monthly variance reports)required to be satisfied throughout the tenn of the contract.

. Upon HTA's approval of the Annual Tourism Marketing Plan, the HVCB expends substantialsums to implement the plan within the first few months of the contract term. The progresspayments provided in the contract reflects a lag period related to the time transientaccommodations tax revenues are actually deposited in the Tourism Special Fund and thelegislatively appropriated funds are subsequently available to be expended by the HT A.

Seventh, we respond to the finding on pages 2:6-28 that "Contract monitoring is deficient" asfollows:

It appears that the finding is based upon a belief that efficient contract monitoring must bemaintained through a central contract list and that there should be specific guidelines formaintaining that list.

.

. It should be noted that each tourism program initiative compiles its own list of contractswhich run either on a calendar or fiscal year basis. The authority believes that a "completeand accurate contract listing" does not fully justify a finding that "contract monitoring isdeficient." The authority believes that the overall monitoring of its contracts is not deficientand this can be confirmed with the completed staff evaluations forms, in addition to thecontractors' final reports found in the completed contract files.

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Eighth, we respond ~o the finding on pages 3,~-35 that "Systems to evaluate and monitor theconvention center o*erator need improvements" as follows:

. As stated in the$ ditor's report, the Convention Center Authority (CCA) sunset on June 30,2000, without le islative reassignment of the Hawaii Convention Center (HCC) to anyagency. The H , through the Governor's Executive Order No.3817 , assumedresponsibility fo the center, effective July 1,2000.

. It should be note that at that time, the HTA, in an agreement with SMG, the center'scontractor to m age the operation of the center, created additional short term goals toachieve. In Mar h 2001, the HTA evaluated SMG because the first phase of the managementcontract was to s t to expire on June 30, 2001 and the HT A was required to either exercise anextension to the ontract or find another management company for the center. As a result,that evaluation p ocess, was performed Ol1l the items as stated in the contract, as well as theshort-term goals greed to in June 2000.

. Thereafter, the TA has monitored SMG on a monthly basis and has performed anevaluation of the r performance for the first quarter ofFY 2002. The HTA has also requestedSMG to provide forecast for the FY 2002 due to the tragic events of September 11,2001and has consiste tly discussed issues related to the tragic events, on a monthly basis todetermine impro ement of their operations. The HTA will, however, revisit the suggestionof the Auditor.

Ninth, we respond tq the finding on pages 35 that "Oversight responsibilities for the conventioncenter are not legisla~ively assigned" as follows:

. As discussed ab~ e, when the CCA sunse:t on June 30, 2000, the HCC was not legislativelyassigned to any ency. The HTA assum(:d responsibility for HCC, through the GoVernor'sExecutive Order 0. 3817, effective July 1, 2000.

. During the legisl~ ive session of2001, the HTA did submit, through the Administration, abill to statutorily ansfer the Hawaii Convention Center (HCC) to the HTA. HoWever, thebill did not pass s other subject matters w'ere subsequently attached to the bill and bothhouses of the Le islature could not Come 10 an agreement.

. This year, the H'ItA, through the Administration, is again introducing legislation to statutorilyassign the HCC t~ HTA.

CONCLUSION

The terroriS~ ttackS on September 11,2001 have adversely impacted tourism in Hawaii

and throughout the orld. Similar to the state of tourism when the HT A was formed in 1998, it

has again placed Ha aii's economy in a crisis situation. In response to the terrorist attacks, theHT A will continue it efforts to remain committed to improving the marketing and promotion of

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tourism. Its future efforts, however, will also reflect an evolution from an entity focused largelyon achieving marketing results to an agency that must be more accountable to management and

government processes.

We look forward to implementing the Auditor's recommendations without reservations with theexception of the following recommendation in 1.e., "clearly tie contractors' remuneration tomeasurable deliverables," which we discuss on page 7. If you have any questions regarding thismatter, please call me at (808) 973-2288.

Very truly yours,

Richard L. HumphreysExecutive Director

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ATTACHMENT 4

DEPARTMENT OF E:USINESS,

ECONOMIC DEVELOPMENT & TOURISMNo.1 Capitol District Building, 250 South Hotel Street, 5th Floor, Honolulu, Hawaii 96813Mailing Address: P.O. Box 2359, Honolulu, Hawaii 96804Web site: www.hawaii.gov/dbedt

Telephone: (808) 586-2355Fax' (808) 586-2377

February 1,2002

RECEIVED

2 16 rH 'OlFEDTo: Marion M. Riga, State Auditolr

OFC. Of TtiE AUDiTOR

STATE OF HAWAIIFrom:

Subject:

Thank you for providing the Department of Business, Economic Development & Tourism(DBEDT) the opportunity to comment on the "Management Audit of Hawaii Tourism

Authority."

The report points out Hawaii Tourism Authority (HTA) could do a better job at management.With the inception of the HTA in 1998, we made radical changes in the organizational structureand create an entirely new way to manage tourism policy. It is not a simple process. The reportdocuments in technical detail management concerns and weaknesses that I will not address in mycomments as they can be more accurately dis<:ussed by the HTA. I believe, however, that thereport will help the new CEO to better manag,e the HT A.

An audit of this type often focuses on technical aspects ofhow an organization is run and doesnot touch upon the value of the organization itself or its contribution to the State. Readers of thisaudit may be misled and think that HTA has not carried out its mission. I believe, however, theHT A has played an important role in improving tourism policy in the State despite somemanagement weaknesses. Some of their major accomplishments include:

.

.

.

Emphasizing a more focused approach to marketing by designating eight geographically-based Major Market Areas. This allowed an increased emphasis on marketing in the USEast (east of the Rockies). The US East market has emerged as the second largestmarket in terms of total expenditures ilfter the US West since 1999. In addition, theState has had a consistent marketing campaign in Japan for the first time. It is also usinga small amount to build future markets in China and other markets with future potential.Set-up clear selection criteria for tourism-related events and activities funded by theState to ensure that funds are used in a manner which is consistent with the goals andstrategy of the HTA.Prepare a strategic plan for tourism that sets the broad course for the future.

83

BENJAMIN J. CAYETANO

GOVERNOR

SEIJI F. NAYA. Ph.Do

DIRECTOR

SHARON So NARIMATSU

DEPUTY DIRECTOR

DAVID Wo BLANE

DIRECTOR, OFFICE OF PLANNING

Marion M. Riga, State AuditorFebruary 1,2002Page 2

.

Increase emphasis on convention and business marketing and improve operations at theHawaii Convention Center. Their leadership in this area helped to resolve somecommunication problems resulting frlom the division of responsibilities betweenoperations and marketing of the Convention Center in the past. I have long pushed formuch more emphasis on business tourism and the HT A has moved in this direction

recently.Switch the emphasis away from visitor arrivals (body counts) to visitor expenditures.This move recognizes that to expand the tourism industry in the State, we mustconcentrate on the higher spending visitors rather than simply increasing the number ofvisitors.The HT A also has begun to look at the supply issues. I have argued that we, as the State,cannot only focus on marketing Hawaii but we must also continue to improve ourproduct and protect our key assets. A.lthough the emphasis of the HTA in its first yearsof inception were on reviving the ind11stry by increasing marketing, they have looked atproviding cultural and sporting event~; to enhance the visitor and resident experience.The HTA has also begun to pursue federal grants to improve parks and roads. The HTArecognizes that more should be done in this area and has made that part of their goal forthe next few years.

I would like to focus the rest ofmy remarks on the area directly affecting DBEDT.

The report objects to the HTA use of visitor e:"penditures as the primary measure ofperformanceciting problems other states have with this indicator. Indeed, it is an imperfect measure. It is,however, the best measure of the size of the visitor industry as a whole and its contribution to theState. It is also the best measure of the HTA overall success in terms of marketing and productdevelopment if the goal ofHTA is to increase the size and health of the industry.

I believe that more states would consider using expenditures as a critical measure of success ifthey had better expenditure data. Total visitor expenditures are comprised of three basic parts:visitor arrivals, length of stay, and per person per day spending. On the first, no other state cancount visitors as accurately as Hawaii since all visitors come either by air or sea. On the lengthof stay, we have an incredible sample of dom(:stic visitors since we have the AgriculturalDeclaration form on all flights originating from us destinations. Additionally, we surveyapproximately 4,000 international visitors a month at the airport and have surveys on everycruise ship coming to Hawaii. Our visitor exp'~nditure surveys are also very good with largesample sizes.

DBEDT has significantly expanded and refinf:d the measures over the past few years. The HT Ahas supported this effort and provided valuable advice and comment. DBEDT will be reportingmonthly expenditure information as requested by the HT A to help them better measure theirefforts on a more timely basis.

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Marion M. Riga, State Auditor

February 1,2002Page 3

Most other states, including Louisiana, rely on syndicated surveys with limited sample size.They cannot count visitors as accurately nor do they have the ability to conduct a good survey ofdeparting visitors because so many of their visitors drive in.

As the report points out, it is extremely difficult to directly measure the impact of a multi-media,multi-year program. Measuring the success of generic Hawaii marketing is even more difficultbecause you are not selling a specific hotel room or airline seat. It is further complicated by thelarge amounts of private sector marketing tha1: takes place.Visitor expenditures are clearly better measure than visitor arrivals alone but subject to problemsbecause visitor expenditures are affected by many factors that the HT A cannot control. HVCBhas in the past attempted to look at the impact of a specific marketing campaign with somesuccess and has done rate ofreturn analysis oj:'the specific programs. For example, the studydone by Longwoods International found that $1.071 billion in visitor expenditures weregenerated by $7.87 million in advertising expt~nditures in the HVCB's 1994 campaign, a rate ofreturn of$9.6 received for every dollar spent. This study is extremely expensive to conduct andonly measures a specific campaign. These kinds of studies should be conducted to measuresuccess of particular programs but cannot serv"e as an overall measure of success.

It should also be pointed out that total expenditures is the key measure but not the only measureused by the HT A. The HT A also looks at performance by Major Market Area in terms ofarrivals, per person per day and per trip spending, and other such measures. It has begun to lookat the share of business visitors to ensure that the goals of the HTA in these areas are met.

While I do believe that expenditures are the b~:st overall measure, I agree that they cannot be theonly measure. Rate of return measures for spe:cific programs need to be developed and used.The HTA has recently moved in this direction but more needs to be done. Further, othermeasures of success, including hotel occupancy rates, market share analysis, and visitorsatisfaction rates, need to be a larger part of the overall determination of success. I admit thatsome of the fault is on the part of DBEDT .We need to more actively adopt indicators andprepare an analysis of the health and success of the visitor industry on a regular basis.

Thank you again for providing me with the opportunity to comment on the report

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Documents

Management Audit of the Hawaii Tourism Authorityfiles.hawaii.gov/auditor/Reports/2002/02-04.pdf · execute contracts and agreements. All of the authority’s revenues come through